Mobile Internet

Transkript

Mobile Internet

International Business
Master Thesis No 2000:39
Difussion of Radically New Products
Strategies for Telecommunication Equipment Vendors
to Manage the Diffusion of Mobile Internet in Developing
Country Markets
The case of Ericsson Turkey
Ömer İlhan Dursun and Engin Gökbayrak
Diffusion of Mobile Internet - The Case of Ericsson
ABSTRACT
In today’s dynamic business life, mobility could be addressed as the strongest
factor shaping the preferences of consumers. Mobility is indisputably the major
driving force behind the success of wireless communication. On the other hand,
the Internet has become our primary source and means of information. The
concept of being accessible to the Internet while one is mobile has ended up in
the creation of Mobile Internet services.
The future of this new technology is still controversial in the developed
markets. We believe that it was somewhat of an interesting departure point for
us to study the situation of mobile Internet in emerging markets beside the
developed markets. We have taken Turkey into spotlight, since the market has
been relatively different from the other emerging markets where several issues
have already been resolved such as the presence of an eligible technical
structure for development of mobile Internet. Additionally, Turkey is the fourth
largest market for Ericsson and this warns us about the existence of an
important potential for mobile data usage. Internet on the other side has
presented a weak performance for several reasons. Mobile Internet could be
expected to bring new opportunities for the market.
In the light of these facts, we have tried to determine necessary actions to be
taken by various players in Turkish telecommunication industry, giving an
additional emphasize to our case company, Ericsson Turkey. We believe that
the academic contribution of the research will also be noteworthy, since it is
one of the first studies about this brand new technology.
Key words: Mobile Internet, mobile communication, Internet, Ericsson,
Turkey, emerging markets, network externalities, diffusion theory, WAP,
GPRS, EDGE, 3G, emerging markets, digital economy, convergence
I
ACKNOWLEDGEMENTS
First, we would like to thank Ms. Sibel Köksal, the head of the indirect channel at
Ericsson Telekomünikasyon A.Ş. She has been most helpful and understanding at
the initial stages of this study. Without her, this report could not have been
possible.
The other key person in the realization of this report has been Mr. Cenk Kırbaş
who is responsible for the Corporate Mobile Internet Solutions at Ericsson. Kırbaş
has been highly involved in the process and was always there to support us. He
has arranged all the interviews for us and has never been too busy to meet us or to
answer our annoying questions (just like a receptionist!). He has treated us with a
lot of respect and has made us feel very comfortable throughout our research
activities in the company. His energy and positive attitude has been most
encouraging.
We would also like to thank all the interviewees both in Turkey and in Sweden for
their time and understanding. These include the Ericsson people as well as other
professionals in the business.
Our tutors Professor Claes-Göran Alvstam and Professor Hans Jansson have
supported us with their valuable guidance in all stages of this research.
Throughout the process, they have introduced new styles of thinking and
approaching the problems. They have helped us to overcome the challenges we
have encountered on our way. Their encouragement has been most useful and
enlightening. Their contribution has been particularly remarkable in bringing the
‘real life’ into the academic world. We would like to thank them for their time and
effort.
We thank all the friends and lecturers who have helped us to equip ourselves with
the right tools for this work during our studies at the Graduate Business School.
Finally, we would like to thank our families for their support and encouragement.
18.01.2001, Gothenburg
II
TABLE OF CONTENTS
1. INTRODUCTION..........................................................................................1
1.1 BACKGROUND .............................................................................................1
1.1.1 The Internet .........................................................................................2
1.1.2 The Mobile Internet.............................................................................3
1.1.3 Mobile Internet has critical importance for developing countries.....5
1.2 THE CASE COMPANY – ERICSSON TELEKOMUNIKASYON A.Ş. ....................5
1.2.1 Ericsson in Turkey...............................................................................6
1.2.2 Strategies of Ericsson Turkey .............................................................7
1.2.3. Mobile Internet and Ericsson.............................................................8
1.3 RESEARCH PROBLEM ...................................................................................9
1.3.1. Research background.........................................................................9
1.3.2 Problem definition............................................................................ 11
1.4. PURPOSE.................................................................................................. 13
1.5. DELIMITATIONS ....................................................................................... 13
1.6 OUTLINE OF THE THESIS ........................................................................... 14
2. CONCEPTUAL FRAMEWORK.............................................................. 15
2.1 THE OUTLINE ........................................................................................... 15
2.1.2 Radically new? ................................................................................. 15
2.2 DEVELOPMENT OF THE ‘TECHNOLOGY INTENSIVE EMERGING INDUSTRY’
IN ESTABLISHED ECONOMIES ......................................................................... 20
2.3 ANALYSIS OF THE COMPETITIVE ENVIRONMENT IN THE DEVELOPING
COUNTRY MARKET ........................................................................................ 21
2.4. COMPARATIVE ANALYSIS OF THE SPECIFIC MARKET .............................. 22
2.5 INTERNAL ANALYSIS ................................................................................ 23
2.6 CRITICAL-ISSUES GRID............................................................................. 25
2. 7 DIFFUSION THEORY AND CROSSING THE CHASM .................................... 27
7.2.1 Moore’s diffusion theory in more detail .......................................... 28
3. METHODOLOGY...................................................................................... 30
3.1. THE RESEARCH DESIGN .......................................................................... 30
3.2 WHY CASE STUDY?.................................................................................. 30
3.2.1 Case study defined............................................................................ 30
3.3. WHY ERICSSON AND THE TURKISH MARKET?......................................... 31
III
3.4. WHAT KIND OF CASE STUDY? ................................................................ 32
3.4.1 Characteristics of case study ........................................................... 32
3.4.2 Single-case vs. multiple-case studies ............................................... 32
3.4.3 Intent of the study ............................................................................. 32
3.4.4. Abductive approach......................................................................... 33
3.5 DATA COLLECTION .................................................................................. 34
3.5.1 Qualitative vs. quantitative data ...................................................... 34
3.5.2 Primary and secondary data............................................................ 34
3.5.3 Primary data .................................................................................... 34
3.5.4 Secondary data................................................................................. 37
3.5.5 Sources of data ................................................................................. 38
3.6 DEGREE OF QUALITY ................................................................................ 38
3.6.1 Validity ............................................................................................. 38
3.7 RELIABILITY ............................................................................................. 40
3.8 VARIOUS TYPES OF ERRORS ..................................................................... 41
4. MOBILE INTERNET................................................................................. 42
4.1 DEFINITION OF MOBILE INTERNET............................................................ 42
4.2 RELEVANCE OF THE ‘MOBILE INTERNET’ CONCEPT ................................. 44
4.3 BACKGROUND .......................................................................................... 45
4.4 THE MOBILE INTERNET VALUE CHAIN ..................................................... 48
4.4.1. Technology Platform Vendors........................................................ 49
4.4.2. Infrastructure Equipment Vendors.................................................. 49
4.4.3. Application Platform Vendors......................................................... 49
4.4.4. Application Developers ................................................................... 50
4.4.5. Content Providers ........................................................................... 50
4.4.6. Content Aggregators ....................................................................... 51
4.4.7. Mobile Portals................................................................................. 51
4.4.8. Mobile Network Operators ............................................................. 52
4.4.9. Mobile Service Providers................................................................ 52
4.4.10. Handset Vendors ........................................................................... 52
4.4.11. Customer ....................................................................................... 53
4.5 TRENDS .................................................................................................... 55
4.6 DRIVERS AND BARRIERS OF THE MOBILE INTERNET ................................ 56
4.6.1 Drivers.............................................................................................. 56
IV
4.6.2 Barriers ............................................................................................ 62
4.7 DYNAMICS OF THE MOBILE INTERNET IN THE DEVELOPED MARKETS ...... 63
4.7.1 The situation of mobile Internet in the developed markets.............. 63
4.7.2 Background of the European mobile telecommunication market.... 64
4.7.3 Mobile Internet: a saver for the equipment vendors?...................... 64
4.7.4 General norms.................................................................................. 66
4.8 M-COMMERCE ......................................................................................... 68
4.8.1 The scope for growing m-commerce................................................ 69
4.9 KEY SUCCESS FACTORS ........................................................................... 70
4.10 THE BUSINESS MODELS ......................................................................... 71
4.11 FUTURE TRENDS AND EXPECTATIONS .................................................... 72
5 INDUSTRY ANALYSIS.............................................................................. 76
5.1 MACRO ENVIRONMENT ANALYSIS ........................................................... 76
5.1.1 Turkey at a glance............................................................................ 76
5.1.2 The Economy.................................................................................... 76
5.1.3 Technological infrastructure............................................................ 81
5.1.4 Demographic structure .................................................................... 82
5.1.5 Government ...................................................................................... 83
5.2 THE INDUSTRY ENVIRONMENT ................................................................. 85
5.2.1 General............................................................................................. 85
5.2.2 Trends............................................................................................... 87
5.2.3 Substitute technologies for mobile Internet ..................................... 87
5.2.4 Complementary technologies for mobile Internet............................ 89
5.2.4 Competition assessment ................................................................... 99
5.2.5 Customers....................................................................................... 102
5.3 TURKEY’S MAJOR PLAYERS IN THE MOBILE INTERNET MARKET ........... 104
5.3.1 Network operators.......................................................................... 104
5.3.2 Application developers/ Content providers / ISPs......................... 109
5.3.3 Equipment Vendors ........................................................................ 113
5.4 FINANCIAL INSTITUTIONS ....................................................................... 118
5.5 MARKET DYNAMICS............................................................................... 119
5.6 DRIVERS AND BARRIERS OF MOBILE INTERNET IN TURKEY ................... 124
5.6.1 Drivers ............................................................................................. 124
5.6.2 Barriers .......................................................................................... 125
V
5.7 AN EVALUATION OF THE MARKET ......................................................... 126
5.8 COMPARATIVE ANALYSIS OF THE TURKISH MOBILE INTERNET MARKET127
5.8.1 Global Diffusion of Technological Innovations............................. 128
5.8.2 SWOT Analysis............................................................................... 130
6. INTERNAL ANALYSIS........................................................................... 138
6.1 ERICSSON TURKEY ................................................................................. 138
6.2 CREA-WORLD: A KICK-STARTER FOR MOBILE INTERNET IN TURKEY ... 139
6.2.1 Crea-World Strategy ...................................................................... 140
6.2.2 The impact of Crea-World to the Turkish Mobile Internet Market 140
6.3 THE RESOURCE STRUCTURE OF ERICSSON TURKEY ............................... 141
6.3.1 Tangible resources ......................................................................... 141
6.3.2 Intangible resources....................................................................... 142
6.3.3 Human resources............................................................................ 146
6.4 ERICSSON TURKEY’S STRATEGY ............................................................ 148
6.5 ORGANIZATIONAL CAPABILITIES............................................................ 149
7. HOW ERICSSON SHOULD ACT.......................................................... 153
7.1 SUMMARY OF OUR ANALYSIS ................................................................ 153
7.2 THE CRITICAL ISSUES GRID FOR MOBILE INTERNET............................... 153
7.2.1 Political issues................................................................................ 154
7.2.2 Behavioural issues.......................................................................... 155
7.2.3 Economical issues .......................................................................... 157
7.2.4 Social issues ................................................................................... 159
7.2.5 Technological issues ...................................................................... 160
7.3 SOME FACTORS AFFECTING USER DEMAND FOR TECHNOLOGY ............. 161
7.4 A HOLISTIC PERSPECTIVE IS REQUIRED TO JUMP OVER THE CHASM ......... 163
7.4.1 Gathering of Convergence Parties................................................. 163
8. CONCLUSIONS AND FUTURE RESEARCH ..................................... 167
8.1 GENERAL CONCLUSIONS ........................................................................ 167
8.2. CONCLUSIONS OF THE THEORETICAL MODEL ........................................ 174
8.3. FUTURE RESEARCH AREAS .................................................................... 174
BIBLIOGRAPHY ......................................................................................... 177
BOOKS AND SCIENTIFIC JOURNALS ............................................................... 177
VI
ARTICLES AND REPORTS ............................................................................... 178
INTERNET SOURCES ...................................................................................... 179
OTHER SOURCES .......................................................................................... 180
INTERVIEWS ................................................................................................. 180
APPENDIX A ................................................................................................ 182
APPENDIX B................................................................................................. 184
VII
FIGURES
Figure 1.1 What do people do online? .......................................................................... 2
Figure 1.2 Forecasts of wireless subscribers 1997- 2005 ............................................. 4
Figure 1.3 The Structure of the Thesis........................................................................ 14
Figure 2.1 The outline of the theoretical framework of the study .............................. 18
Figure 2.2 The outline (Detailed version) ................................................................................19
Figure 2.3 Complementary resources ......................................................................... 20
Figure 2.4 Environmental Analysis and Industry Analysis ........................................ 22
Figure 2.4. Analysing Competitive Advantage ......................................................... 23
Figure 2.5 Internal Analysis ....................................................................................... 24
Figure 2.6. Moore’s Diffusion theory ......................................................................... 28
Figure 4.1 Number of Mobile subscribers vs. Desktop users..................................... 43
Figure 4.2 The growth of European m-commerce market (1998-2003) .................... 46
Figure 4.3 Mobile Internet development model ......................................................... 47
Figure 4.4 Mobile Internet Value Chain ..................................................................... 48
Figure 4.5 The structure of the Europe Mobile Internet Market ................................ 67
Figure 5.1 Revenue per Subscriber - fixed line telephony companies ...................... 98
Figure 5.1 Market players in the development of mobile Internet ........................... 123
VIII
TABLES
Table 1.1 Top ten markets for Ericsson.........................................................................7
Table 1.2. Size of the mobile communications market in Turkey (Q2 2000)........................10
Table 2.3 Critical-Issues Grid......................................................................................26
Table 3.1 Characteristics of case study ......................................................................32
Table 3.2 Interview Evaluation Table .........................................................................36
Table 5.1 Key indicators and long-term trends of the Turkish economy ..........................79
Table 5.2 Basic institutional facts about Turkey .........................................................83
Table 5.3. SWOT table regarding the comparative analysis .....................................131
Table 7.1 Political issues Grid ...................................................................................155
Table 7.2 The Behavioural issues grid ......................................................................156
Table 7.3 Economic issues grid .................................................................................158
Table 7.4. Social issues grid ......................................................................................160
Table 7.5. Technological issues grid .........................................................................160
IX
1. INTRODUCTION
This study deals with the mobile Internet Industry with special focus on Turkey.
In this chapter, we aim to present the background of the research. This
introductory chapter is designed as follows. First, we give brief information
about the industry, the case company and the country market. Then we define
the research problem and the sub-problems. Finally, we state the purpose and
the delimitations of the study.
1.1 Background
The main reason for us choosing the development pattern of Mobile Internet
Industry as our research subject was that it is a relatively new business
development platform. It is the result of the fusion of the two ‘hottest’
industries, mobile communications industry and the Internet. This newly
commercialised technology represents arguably the most promising and
challenging platform following the unprecedented boom of the wireline
Internet during the 90s. This new medium presents enormous opportunities for
the developed countries as well as for the developing countries. ‘Lower-thanthe wireline’ costs of deploying this technology and to cover large areas in a
short time gives new prospects and chances for many developing nations,
which are striving to integrate and adapt themselves to the so-called ‘new
economy’ and the Internet epoch.
Mobile telecommunication and the convergence of the Internet to this
booming medium have emerged as two of the most important phenomena
within the globalisation process. Particularly in Europe, which leads the Mobile
technology developments ahead of U.S.A that is the leader of the Internet
world, the mobile Internet has surfaced as a vital issue. It is thought to be vital
to catch up with U.S. in the Internet technologies and to increase the
competencies of the European economies in the digital economy era. Thus,
mobile Internet is not just a technological or an economic issue but is also a
strategic issue to be addressed by the governments around the world.
1
1.1.1 The Internet
The emergence of the datacom technologies, mainly the Internet has changed
our lives in many ways. The Internet is more than just a technology trend. It is
a global phenomenon that could ultimately cause as much change in the world
economy as the printing press, the telephone, electricity or the automobile.
Unlike usual technology trends, which render prevailing technologies obsolete
and open the door for vendors of new technologies, the Internet, which has
been growing so quickly1, is changing the way people and companies
communicate research, buy, sell, distribute goods and services, and spend
leisure time. As a result, it is not only creating the opportunity for new
businesses to get big fast, but is also introducing change and competition into a
wide range of mature industries, including media, retailing, technology,
communications, financial services, transportation, healthcare, and energy.
Today millions of people all around the world go online to (1) communicate,
(2) look for, read, watch, listen to, interact with news, information, people or
products and (3) in one way or another, transact.
Figure 1.1 What do people do online? (2000)
What do people do online?
24%
38%
search
Email/Messaging
Commerce & Other
38%
Note: The percentages of number of hours spent online per activity. Content, Commerce and Other
includes finance, games, news and sports Source: Interviews / Turkey, October 2000
The Internet has changed the way people do business. The business-toconsumer (B2C) and the business-to-business (B2B) transactions taking place
1
The Internet has been an affordable and commercially available only since 1994. Though by 1997,
some 19 million Americans were using the Internet. That number tripled in one year, and then
passed 100 million in 1999. Source: The UCLA Internet Report (2000)
2
on the Internet have been growing at a rapid pace. eMarketer, a research
company specialized on the Internet, in its eGlobal report foresees that total
worldwide e-commerce will total $550 billion by year-end 2001. By 2004, it is
expected to reach $3.2 trillion2. The advantages to banks, betting firms, travel
agencies and other companies offering services and content, are apparent.
Besides being able to offer customers new and attractive services, companies
can gather information about individual customer behaviour to use in
marketing and developing new services and products.
According to the eGlobal Report, the number of active Internet users
worldwide will climb to 361.9 million by the year 2003, a 178 percent rise on
the 130.6 million people who were actively using the Net at year-end 1999. The
pace of expansion is incredible. Yet, one trend surpasses all these numbers…
1.1.2 The Mobile Internet
The rapid expansion of the Internet has been extraordinary. So was the
expansion of the mobile telecommunication systems. Now the Internet and the
mobility come together to offer us the ‘mobile Internet’. The Internet and
Wireless will merge into one service that business users and consumers will use
daily. Personalized Services will be delivered to individuals with knowledge of
the users location, desires, needs, and schedule. Homes will be secured with
wireless alarm systems, cars will alert the mechanic and the driver when there
is a problem, and most applications will be built "geo-location ready". These
context sensitive services will create a new dimension that enhances today's
static, fixed, wired Internet.
Data traffic is increasing enormously, and is expected to grow 40-50 per cent in
year 2000. This growth in demand for Internet access and services has
paralleled the explosion in demand for mobile communications. Soon mobile
systems users all over the world will be able to access to the Internet while they
are away from their offices and homes. Therefore, utilization of Internet via
2
Source: eMarketer web site - http://emarketer.com/
3
mobile systems appears as a suitable platform for the development of
commercial services, which are expected to bring more to our business and
daily lives than we have achieved from the Internet and cell phones separately.
With Mobile Internet, we gain access to the Web wherever, and whenever it
suits us. More, we will be able to have access to a new set of services tailored
to our location, individual preferences and circumstances.
Figure 1.2 Forecasts of wireless subscribers compared to TV and PC users
1997- 2005
Mobile: The largest potential data platform:
l
t
t
ti l d t
1,200
1,000
800
TV
H
W ireless
Subscribers
600
PC
H
400
200
1997
1999
2001
2003
2005
Source: Goldman Sachs presentation: Mobile Data – Facts and fictions by Sean Faughnan,
http://www.gs.com/
The Internet has become the fastest growing electronic technology in world
history. In the United States, for example, after electricity became publicly
available, 46 years passed before 30 percent of American homes were wired;
38 years passed before the telephone reached 30 percent of U.S. households,
and 17 years for television. The Internet required only seven years to reach 30
percent of American households. However, there is more: the number of
wireless subscribers has reached the same penetration rate in less time.
The birth of the Mobile Internet and the deployment of the infrastructure for
this technology is arguably the most exciting and controversial issue at this
time. This and the descriptions we made above explain why we have chosen
4
this topic. However, they do not reveal why we have particularly chosen the
Turkish Market.
1.1.3 Mobile Internet has critical importance for developing countries
Choosing emerging markets, and particularly Turkey, as our research area is
based on the fact that mobile Internet is a huge opportunity for these countries
in their effort to cope with the developed economies through increasing Internet
penetration rate by deploying the relatively cheap and easy-to-build mobile
communication infrastructures. In the case of Turkey, we observe that the
country has a relatively up to date telecom infrastructure, which is comparable
to the networks in Western Europe. Besides, the mobile subscriber base is
expanding rapidly, although the penetration rate is still below EU averages.
However, we came across some problematic factors that could be a threat to the
fast diffusion and exploitation of this technology. These factors, in return,
could prevent the market from reaching the appropriate volume that would
enable the businesses along the value chain to operate profitably. Considering
these, we found the topic ‘Mobile Internet Development Strategies for Turkey’
as a suitable practical and theoretical base to create our research problem. We
decided to analyse the market with a special regard to our case company and to
come up with several applicable suggestions that could help to relate to the
challenges of developing this new service throughout the country.
In the light of all this, in late summer we got in contact with Ericsson’s
subsidiary in Turkey, Ericsson Telekomunikasyon A.Ş. (ETAS) with the aim of
concluding them as our case company. They were also interested in searching
for ways to explore the critical factors for increasing the diffusion rate for this
new platform in the Turkish market. Thus, we agreed on cooperating on this
research project. The business development team in Ericsson has been most
helpful, understanding and supportive for the creation of this study since then.
1.2 The Case Company – Ericsson Telekomunikasyon A.Ş.
Ericsson is one of the leading suppliers of telecommunication equipment. The
company operates in seven continents, enabling people to communicate with
5
each other. Ericsson is the world leader in mobile systems, with nearly 40
percent of the market, based on total subscribers connected to mobile
networks. Today Ericsson provides total solutions from infrastructure to
application, cellular phones and all the telecommunication equipment with its
over 100,000 employees throughout 140 countries.
The company is also the leading communications supplier, combining
innovation in mobility and Internet in creating the new era of Mobile Internet
(MI).
1.2.1 Ericsson in Turkey
Ericsson has been active in Turkey for over a century. In the 1890s, Ericsson
connected Dolmabahçe Palace, the primary residence of the Ottoman Sultans,
to a telephone line. In 1925, two years after the foundation of the Turkish
Republic, Ericsson installed a telephone service in Izmir and the Aegean
hinterland. This company later became Ericsson Turk, the leading supplier to
PTT, the national telecommunication operator, in the 1950s and the 1960s.
In 1986, a new stage of activity began with the establishment of Ericsson
Telekomunikasyon A.Ş. (ETAS), which introduced cellular mobile telephone
system (GSM) to Turkey in 1993 as a founding shareholder and supplier of
Turkcell.
ETAS is a leader in telecommunications in Turkey, supplying products for both
fixed-wire and mobile communications to the public and private networks. The
company serves the mobile phone market through the GSM system installed for
Turkcell and retains a dominant share in the competitive market for mobile
phone handsets.
6
Table 1.1 Top ten markets for Ericsson
TOP TEN MARKETS
1.
U.S.A.
12%
2.
CHINA
9%
3.
U.K.
7%
4.
TURKEY
6%
5.
ITALY
6%
6.
SPAIN
6%
7.
BRAZIL
5%
8.
MEXICO
5%
9.
JAPAN
5%
10.
SWEDEN
4%
Source: Ericsson, official website3, Figures are In
terms of sales volume as of end of Q2, 2000
The Turkish market gained further significance for Ericsson in 2000. ETAS has
captured 6 percent of net sales and ranked fourth among Ericsson’s 10 largest
markets for the first half of the year. Based in Istanbul, with representation and
operation offices in Ankara and site offices in ten other cities, ETAS currently
has a 550-strong workforce.
1.2.2 Strategies of Ericsson Turkey
In Turkey, Ericsson follows four main strategies in accordance with its global
corporate strategy bundle. These are (1) Focusing on profitable growth, (2)
Providing ‘Total Solutions’ to tomorrow's needs, (3) Creating added value for
customers and strengthening customer relations, (4) Strengthening the market's
perception of Ericsson through branding and marketing.
3
http://www.ericsson.com/infocenter/publications/contact/q2_2000_market_areas.html
7
Due to increasing competition in its markets, keeping close relations with
customers such as Turkcell4 and Turk Telekom5 has become extremely
important. The main customer segments for Ericsson in Turkey are
!"Network operators and service providers
!"Consumer Products
Enterprises (Corporate Clients) are at the moment a relatively less significant
segment in the portfolio and are yet to be developed.
Ericsson is the market leader in mobile telecommunications market and in the
fastest growing segment within this area, the Mobile Internet. Therefore, the
company’s main goal is to sustain this lead through exploiting its first mover
advantage in the sector.
In this frame, we have chosen to study Ericsson’s strategic options for MI
Business Development in the Turkish market.
1.2.3. Mobile Internet and Ericsson
The MI offers much more than mobile access to the Internet - it opens up a
completely new class of situation-based services that provide anytime,
anywhere access to personalized communications, information and
entertainment.
Ericsson’s contributions to the WAP technology go back to the mid-1990s,
where there had been cooperation with AU-System6 to establish a mobile
terminal, called ITTP (Intelligent Terminal Transfer Protocol). This attempt
was immediately followed by Nokia and Unwired Planet (today, it is
Phone.com). Right after that, the mentioned actors decided to discuss the
possibility of an open standard for wireless applications. With the initiatives of
4
The leading mobile service provider in the country
The telecom arm of the former national communication agency PTT
6
Another Swedish supplier of consulting services and solutions for the development of advanced
wireless and Internet technologies, applications and associated services.
5
8
Ericsson, Nokia, Motorola, and Unwired Planet, the basics of the WAP
applications have been established after a meeting in 16 June 1997. 7
Ericsson predicts that by 2004, there will be as many as 600 million users of
MI services. Keeping this in mind, the company presents an additional effort in
its operations within this area. Not different from its market position in GSM
market, the company is to achieve the market leadership in the development of
new technologies, necessary for the MI (GPRS, 3G, WAP, Bluetooth…).
Ericsson endeavours to provide total MI solutions with products and services
ranging from infrastructure for operators to devices for the end users (such as
WAP products like R320). Throughout the coming years, Ericsson will try to
maintain its leading position in the key operation areas and services that are
mentioned below8:
!"Mobile Office Solutions
!"Mobile Positioning System
!"M-commerce Solutions
!"Interactive Communication Services
!"IP Based Messaging Services
!"Mobile Portal Solutions
1.3 Research Problem
1.3.1. Research background
Telecommunication is one of the leading industries in this first century of the
new millennium. The developments in this industry began to shape the trends
in the other industries, which increases the importance of this industry to a
higher extent. Ericsson, which plays an important role in these developments,
now faces an immense opportunity for business development.
7
8
Svenska Dagbladet, 13 September 2000
Ericsson Turkey Official Website, http://www.ericsson.com.tr/
9
Table 1.2. Size of the mobile communications market in Turkey (Q2 2000)
INDUSTRY DATA
June 1999
June 2000
Change
Estimated Population of Turkey (in millions)
64.33
65.34
2%
Turkish Mobile Telephone Customers (in millions)
5.50
10.58
92%
Turkish Market Mobile Telephone Penetration
9%
16%
Source: Turkcell Official Website, http://www.turkcell.com.tr
The remarkable growth in the penetration rate of mobile phone subscribers in
Turkey gives Ericsson a new prospect to sustain and further develop its leading
position in the national market. Turkish market is rather sizeable, and the
relatively low penetration rate offers huge business expansion opportunities.
On the other hand, all the major vendors of equipment have operations in the
country in varied degrees and competition is rather strong.
As mentioned above, the huge customer potential is one of the determinants
that make Turkey one of the promising markets. On the other hand, the
situation of the supplier side of the market is not less appealing than the
demand side. It is believed that Türkiye İş Bankası – Telecom Italia Group,
which won the license for the operating of GSM 1800, will give competition a
new pace that had formerly been driven by two local operators; Turkcell and
Telsim. A fourth GSM operator to be launched during year 2000 is also under
question, which will surely have significant contributions for the market. The
national monopoly for the fixed-line, Turk Telecom, is planned to be privatised
within 2001. The state-owned company also holds a license to operate a mobile
network, although no investment to establish the infrastructure is expected
before the privatisation takes place.
At present, Ericsson is the sole vendor for the major carrier, Turkcell, and has
been one of the major suppliers to Turk Telecom. As per sales, Ericsson is the
leading supplier for both the network operators/service providers segment and
the consumer products segment of the mobile industry.
10
1.3.2 Problem definition
In the light of what has been discussed above, one can conclude that (1) the
Turkish telecom market is likely to keep on being one of the major markets for
equipment vendors and the most lucrative segment will be the rapidly growing
MI, (2) Ericsson currently has a leading position in the most promising
segments of this market and (3) the competition in the market is everincreasing and it is getting harder for any company to sustain its position and
achieve further growth. As a consequence of these three conclusions, we have
decided to investigate the key success factors in order to cope with the
challenges of the Turkish MI market for equipment vendors.
In this regard, we can portray the problem as follows:
MAIN PROBLEM
How can a telecommunications equipment vendor successfully implement business development
strategies in the rapidly growing Turkish mobile Internet market and achieve profitable growth?
In order to find an answer for this problem, we will subdivide it into several
specific problems in order to be able to get into the basis of the problem.
RESEARCH PROBLEM 1
What is the composition of the Mobile Internet Industry in Turkey?
In the first research problem, the main purpose is investigating the effects of
the macroeconomic factors on the industry environment without pursuing a
detailed analysis on the macroeconomic aspects. Depicting the composition of
the MI industry in Turkey will be the departure point for our study in order to
establish a base to clarify the specific trends within the industry.
Scrutinizing this interaction between the macro and microenvironment of
Ericsson, we will be able to determine the effects of the macroeconomic
institutes on the microeconomic level. Therefore, it will be much easier for
Ericsson to understand the competition and notify the major driving forces
behind the new trends. This approach will also make our study more
11
practically based, which is crucial for the future applicability in daily business
life.
RESEARCH PROBLEM 2
What are the major differences in the diffusion process of the mobile Internet between the developed
and the developing economies?
After examining the general map of the major actors surrounding Ericsson
within the industry, we will try to reveal the interaction between these actors,
keeping Ericsson in focus within this environment. By doing so, we will be
able to compare the concurrent operations of Ericsson with the other units’
operations that are mentioned both in the macro and in microeconomic level.
This is important in creating the possibility to determine the pros and cons,
which will be the major tool to evaluate whether the company is on the right
track to cope with the requirements of the ever-changing competition.
RESEARCH PROBLEM 3
How does Ericsson relate to the challenges of this context?
The reason behind our approach to clarify Ericsson’s position in the Turkish
MI industry is that we should find out the vital aspects in order to create a
competitive advantage. Invention and innovation are the most important
driving forces to create competitiveness in the technology-based industries.
However, Ericsson Turkey acts as a service company that provides solutions
for the corporate customers and as an intermediary that sells the consumer
products to the end consumers. This fact led us to find it important for Ericsson
to establish successful relationships with its business environment. Therefore,
other corporate capabilities will replace invention, innovation and other success
factors relevant for manufacturing. Diffusion comes out as a crucial concern
considering the role of the company. Therefore, it is all about creating value
for the customers and the other units in the supply chain. Hence, Ericsson must
understand its suppliers, competitors, and customers and determine how to
form business relationships with them. Innovation is certainly a key success
factor in MI industry. However, in our case, the main problem is to achieve
12
acceptance for these innovations from both the demand and the supply side.
Innovation cannot be turned into a competitive edge if it is not valued or does
not gain acceptance by the market.
1.4. Purpose
MI is the result of the convergence of the Internet and the mobile
telecommunication. Both sectors have had an astoundingly rapid but at the
same time, a rather problematic diffusion processes. Their mix, the MI is likely
to diffuse even more rapidly. However, the problems could be bigger as well
both for the companies supplying the infrastructure and for the service
providers. These problems are apparent even in Sweden, which enjoys one of
the highest mobile penetration rates in the world9. One can assume that the
integration of this technology could be even more painful in an emerging
economy, for example Turkey. Therefore, with this study we decided to
explore the present and future state of the Turkish MI market and
consequently to construct a framework for business developers on the
equipment vendor side of the industry.
1.5. Delimitations
The study is to deal with the MI industry alone and not with the mobile
industry as a whole.
A thorough macro-environmental analysis will not be conducted as the research
aims to study the emerging industry and not the emerging market itself.
Our analysis and the conclusions we come to, does not address a specific
product group or a customer segment. With this study, we aim to construct a
picture of the industry environment and then to construct a framework that
would help the case company to relate to the challenges of developing the
9
DAGENS INDUSTRI reports the difficulties Swedish WAP service providers face in
issue - Ingen marknad för WAP.
13
2000-09-18
market and thereby achieving a profitable growth through increased sales.
Thus, the focus of the study is on how to develop the market and stimulate the
demand for this new platform and the services that come with it.
1.6 Outline of the Thesis
The thesis is composed of eight chapters as the steps to solve our sub problems
and eventually our main problem and fulfil the purpose of the study. The
outline of the chapters can be depicted as follows.
Figure 1.3 The Structure of the Thesis
C h a p te r 1 : In tro d u c tio n
P re sen ta tio n o f th e b ac k g ro u n d an d p ro b lem
to g eth e r w ith th e p u rp o se o f th e stu d y
C h a p te r 2 : C o n c e p tu a l F r a m ew o r k
P re sen ta tio n o f m o d e ls an d c o n c ep ts th at stru c tu re
o u r s tu d y
C h a p te r 3 : M e th o d o lo g y
P re se n ta tio n o f m e th o d s an d te ch n iq u es u sed in
o u r rese a rc h
C h a p te r 4 : M o b ile In te r n e t
T h e c o n c ep tu a l ev alu a tio n o f
M o b ile In tern et an d th e
situ a tio n o f th e te ch n o lo g y
in d ev e lo p ed m a rk e ts
C h a p te r 5 : I n d u s tr y A n a ly sis
T h e e v a lu atio n o f th e T u rk ish
m o b ile In te rn e t m a rk et to g e th e r
w ith re la ted in d u stries
C h a p te r 6 : In te r n a l A n a ly sis
In te rn a l an aly sis o f E rics so n T u rk e y a n d its o p e ratio n s w ith in
n a tio n a l c o n te x t
C h a p te r 7 : H o w E r ic s so n S h o u ld A c t
C ritica l issu e s in T u rk ish m a rk e t h av e b e en h ig h lig h ted fo r p ro d u c t
a n d serv ic e d ev e lo p m e n t
C h a p te r 8 : C o n clu s io n s a n d F u tu r e R es ea r c h
T h e c o n clu sio n s, ex tra c ted fro m th e re se arc h h a v e b e en p re se n te d
in o rd e r to an sw e r o u r m a in p ro b le m . W e c o n c lu d e d o u r stu d y
w ith th e su g g estio n s o f sev e ra l fu tu re re sea rc h a re a s
Source: Own
14
2. CONCEPTUAL FRAMEWORK
This chapter is organized as follows. First, we present the overall outline of the
theoretical backbone of the thesis. Then we explain each component separately.
We attempt to give a description of each model and give details about the
modifications we have made.
2.1 The Outline
In this study, we attempt to present a detailed description and an analysis of the
industry. Our research problem mainly concerns the development of an
emerging industry in an emerging market. That is the diffusion process of the
Mobile Internet in Turkey. Our starting point was that there would be some
differences in the adoption of this ‘newly-commercialised’ product in
developed and developing economies. Coping with these differences would
only be possible once they are clearly defined. Thus, we have constructed the
following model (1) to analyse the current situation of the industry, (2) to
determine the critical issues to address and finally (3) to come up with specific
recommendations. Doing this we have integrated existing models and modified
them in a way that they would serve our purposes.
Both mobile communications and the Internet are technologies (or products)
that have long been commercialised. The convergence of these two, the mobile
Internet has also been technologically feasible for a rather long time. However,
the introduction of the commercial mobile Internet for the masses is a recent
phenomenon. There is something ‘radically different’ about it.
2.1.2 Radically new?
We suggest that the mobile Internet illustrates a radical change in the way
people communicate. The framework we use for classifying change comes
from Golembiewski, Billingsley, and Yeager (1976). Cooper (2000) quotes in
his article, Strategic Marketing Planning for Radically New Products, from
15
Golembiewski et al., which expands on the traditional understanding of change.
Instead of assuming that change is a single unified concept, the authors
distinguish three distinct types of change.
Alpha Change: A variation that is measured on a fixed scale. This kind of
change amounts to repositioning a brand in an existing framework such as a
perceptual map. The dimensions do not change, nor is there any implied change
in what people value. Rather the attempt is to realign the brand image to better
capture existing values. An advertising campaign to make Oldsmobile have a
sportier image would be an example of an alpha change.
Beta Change: A variation that is measured on a changing scale. A beta change
occurs when values change—with a corresponding change in ideal points in a
product map. Say the children finally leave home and the parents can indulge
their desire for sportier cars. Without any change in brand positioning, (i.e.,
alpha change), sportier cars are more preferred because the consumer’s values
have changed, a beta change.
Gamma Change: A variation that can only be measured by adding a new
perceived dimension to product positioning that redefines the products and the
ideal points in a perceptual map of a market. For example, a car manufacturer
introduces an electric vehicle. Consumers now have to think about recharging
stations, rethink carpooling notions, and reset expectations about acceleration,
trip distance, and reliability. These factors change the dimensions of the
problem – the defining characteristic of gamma change.
According to Cooper10, products are radically new from a consumer
perspective when gamma change occurs. A single dimension reflects the least
change that is considered radical from a consumer perspective. The
technological revolution that reshapes where and how we work or how we live
our family lives engages many new dimensions of experience and expression.
Many of the topics that are relevant for radically new products are also relevant
for more traditional new product planning. However, there are significantly
10
Cooper (2000)
16
different issues one should address when dealing with the former. As these
products are generally examples of ‘discontinuous innovations’ or ‘disruptive
innovations’ that change the dimensionality of the consumer decision and
revolutionize product markets. Be it one or multi-dimensional, gamma change
should cause planners to rethink what are often considered settled
questions about the environment and infrastructure.
The mobile Internet also represents a gamma change as it adds totally different
functions to both the mobile communication and the way the Internet is used. It
introduces real ‘real-time’ information, uninterrupted access and mobility to the
Internet and increased datacom abilities and content to the mobile
communication. By doing that it changes the dimensions of both. Mobile
Internet is neither one of its components but a radically new product. Thus, it
deserves specific attention and consideration by the professionals operating in
this industry.
So far, we tried to explain the two basic assumptions that constitute the logic
behind the outline of the study. These are
The development process of a technology-intensive emerging industry (or the
introduction of a radically new product) would be significantly different in
developed and developing country markets
The focus of the study, the mobile Internet, is a radically new product and the
marketing planning should be significantly different from a traditionally new
product.
In the light of these two assumptions, we came up with the following
framework. The figure below briefly portrays the structure of the conceptual
framework. A more comprehensive description of each stage is given in the
following sections.
17
Figure 2.1 The outline of the theoretical framework of the study
Analysis of the
Competitive
environment in the
developing country
market
Development of the
‘technology intensive
emerging industry’ in
established economies
INTERNAL
ANALYSIS OF
THE
COMPANY
CRITICAL-ISSUES GRID
BUSINESS DEVELOPMENT STRATEGIES FOR THE CASE
COMPANY WITH REGARD TO THE SPECIFIC MARKET
Source: Own
18
Figure 2.2 The outline of the theoretical framework of the study (Detailed
version)
#"Internal Analysis
•
•
•
Current strategies
Resource
capabilities
and
Organization
Development of the
‘technology intensive
emerging industry’ in
established economies
•
•
Analysis
of
the
Competitive environment
in the developing country
market
Trends
•
Technology/Infrastructure
Drivers
•
•
Demographic structure
Government
•
The national/ international
economy
•
The industry environment
Substitutes
o
(Competing
technologies)
•
Barriers
•
Complementary /
competing technologies
#"Critical Issues Grid
The five environmental forces
•
Political
•
Behavioural (how people
interact with the product)
•
Economic
•
Social
•
Technological
Comparative analysis of the Specific Market
The Shortcomings and the Comparative Advantages
of the Specific Market with regard to the Developed
Country Markets
BUSINESS DEVELOPMENT STRATEGIES FOR THE CASE COMPANY
WITH REGARD TO THE SPECIFIC MARKET
Source: Own
19
2.2 Development Of The ‘Technology Intensive Emerging
Industry’ In Established Economies
In this part of the analysis we aim to (1) define the industry, (2) introduce the
value chain and the significant actors, (3) list the drivers and barriers to the
emergence of the industry and (4) evaluate the competing/ complementary
technologies. To do that, we use a modified version of Grant’s complementary
resources grid.
Figure 2.3 Complementary resources
Marketing
Finance
Cooperation
between
convergence
parties
Complementary
technologies
Core
Technological
Know-how in
the new
product
Other
Other
Source: Grant (1998) p. 271
According to Grant, bringing new products and processes to market requires
more than invention, it requires ‘the diverse resources and capabilities needed
to finance, produce and market the innovation. These are referred to as
complementary resources. We have included a new component to Grant’s
model, cooperation between convergence parties and taken out some of the
components that were irrelevant for our study.
The characteristics and availability of the complementary resources required to
commercialise an innovation are critical to the appropriability of the returns
to an innovation. Our main research problem emphasizes ‘profitable growth’.
Thus, one of the main ideas of our research is to find solutions to maximize the
20
return and increase the appropriability for the case company in the adoption
process of the new product.
Grant (1998) also argues that if the required complementary resources are
owned by other firms or individuals, then the returns to innovation are shared
between the innovators and these owners. Where these resources are generic,
these owners have less bargaining power, which encourages the adoption of the
new product and enhance its returns. In a similar way, the requirement for
highly-specialized complementary resources limits the returns to the innovator
and discourages the adoption.
2.3 Analysis of the Competitive Environment in the Developing
Country Market
To visualize the competitive environment, we have decided to modify Grant’s
(1998) ‘Business Environment Model’. Here, we aim to analyse the “business
environment” in order to determine which of the macroeconomic factors are
important for the firm and its industrial environment. However, the main
concern is not the deep analysis of the macroeconomic factors depicted in the
model, but to determine how these factors affect the firm’s industry
environment.
21
Figure 2.4 Environmental Analysis and Industry Analysis
Social
Structure
Technology
Behavioural
(Demographic
Structure)
THE INDUSTRY ENVIRONMENT
Politics
(Government)
•
Complementary/Competing
Technologies
•
•
Competitors
Customers
Economy
(The National
/ International
Economy
THE MACRO ENVIRONMENT
Source: Grant (1998), p. 53
We aim to use this model to portray the interaction between the macroenvironmental factors and the company’s industry environment. Thus, by
focusing on the industry environment, we want to determine which of the
macro-level influences are important for the firm and which are not. The idea is
not to conduct a thorough macro environment or industry environment analysis
but to get a picture of the competitive environment from the outcome of these
analyses.
2.4. Comparative Analysis of the Specific Market
We find it important to compare the main differences in the diffusion process
of an emerging industry or adoption of a radically new product in the
developed and the developing economies in order to establish a base for
drawing conclusions and making recommendations on business development
strategies for a company operating in that particular industry. By doing that,
one might be able to take advantage of the already established business models,
business applications, and success and failure stories in the developed markets.
Thus, it could be possible to constitute a guideline for modification and
22
adaptation of these processes to the developing country market environment. In
our case, this would be the Turkish Mobile Internet market.
We compare the national environment with the international industry to find
out the major key success factors that will lead the company in focus to achieve
a competitive edge.
We base this market comparison on Grant’s model, “Analysing Competitive
Advantage within an International Context”. Doing this, we will not only be
able to determine the certain aspects to be modified but also discover the
comparative advantages of the Turkish market that could encourage the
adoption of the product and expansion of the industry in the developing country
market.
Figure 2.4. Analysing Competitive Advantage within an International Context
The National Environment
Resources
&
• National
Capabilities (national culture,
human
resources,
infrastructure)
The International Industry
Environment
• General Norms
•
Key Success Factors
•
Future
Trends
Expectations
&
•
Domestic Market Conditions
•
Government Policies
E h
R t
The Shortcomings and the
Comparative
Advantages
of
National Market to the Industry
in International Context
Source: Adapted from Grant (1998), p. 337
2.5 Internal Analysis
After determining the shortcomings and the comparative advantages of the
national market with regard to the international context, we attempt to find out
23
how a company can pursue the development strategies within this context. We
consider it essential to make an internal analysis in order to match the resources
and capabilities of the company with the general market requirements.
The main problem at this stage emerges as the company might experience
difficulties to delegate the corporate resources and capabilities for the
fulfilment of the strategies determined. Therefore, we decided to use Grant’s
“The Relationships among Resources, Capabilities and Competitive
Advantage” model in order to present how a company relates to the industrial
environment and how it can create the potential to achieve competitive
advantage by utilizing the resources and capabilities at an optimum level.
Figure 2.5 Internal Analysis - The Relationships among Resources, Capabilities
and Competitive advantage
Competitive
Advantage
Strategy
Industry Key
Success Factors
Organizational
Capabilities
Resources
Tangible
- Financial Resources
- Physical Resources
Intangible
- Technology
- Reputation
- Culture
Human
- Specialized skills &
knowledge
Communication
and
interactive abilities
Source: Grant (1998), p. 113
At this point, it is worth noting that the focus is not on the global strategic
choices and the overall competence of the company. This analysis aims to
explore how the company relates to the specific environment in the specific
market. In our case, the company in focus is a giant MNC operating in all
24
major markets with more than 100,000 employees. Thus, we refer to the global
policies and competencies only to the extent that they are related to the
operations in the specific market. Therefore, a thorough analysis of the
company as a whole is not relevant and should not be expected.
2.6 Critical-Issues Grid
While analysing the different environments in which a company operates, five
basic environmental forces are particularly significant: Political, Behavioural,
Economic, Social and Technological. Each of these forces affects different
aspects of the product development process. Political forces appear in form of
government regulations and actions, legal precedent or international
agreements to name a few. For example, a political issue that would affect the
development of the mobile Internet and third generation networks (3G) would
be the decision by the national governments on whether to auction off the
access to that frequency spectrum or simply give spectrum with a so called
‘beauty contest’ (considering the roll-out rate, coverage area, etc.). Behavioural
forces come from the consumer – how consumers traditionally interact with
products and how these interactions might change with the introduction of
something radically new. These issues are common in areas such as electronic
banking, m-commerce, etc. where firms must overcome consumer distrust in
order to succeed.
Economic forces stem from the consumer and from the structure of markets.
Any product that changes the ways in which consumers purchase goods and
services will inevitably encounter economic forces. Internet airline ticket
auctions provide a good example of how a new method of commerce can affect
traditional guidelines for what is a good deal. Economic forces are also in play
in the negotiations over alliances, as well as issues of scale and scope of
operations.
Products that affect the way that people interact with one another often
encounter social forces. E-mail, SMS and online chat are well-known
examples, as whole new rules of etiquette and conduct have been invented to
deal with the societal changes this product has caused.
25
Of these five, technological forces receives the most publicity in the media.
Every day one can read about how computers with faster processors, bigger
hard drives and more memory are allowing people to do more, faster. This type
of rapid progress dramatically changes consumer’s expectations of what new
products can do and how much consumers are willing to pay for them.
The critical-issues grid provides a tool for identifying the key issues that may
affect the product planning process. The grid places the five environmental
forces in rows in the matrix and places three points of view (company,
business ecosystem, and infrastructure) as column heads. The company is, of
course, part of the business ecosystem, and the ecosystem is part of the larger
infrastructure. Therefore, these three points of view bring different issues into
focus.
The idea of the critical-issues grid is to keep strategic marketing planners
thinking divergently enough that the fundamental issues are elicited.
Table 2.3 Critical-Issues Grid
Company
Industry
Focus
Environments
(Business
Ecosystem/Value
Networks)
Infrastructure
Political
Behavioural
(how
people interact w/
product)
Economic
Social
Technological
Source: Cooper (2000)
It may be possible to achieve similar aims by the traditional SWOT analysis, or
using techniques such as STRATMESH (Dickson 1994) or discovery driven
planning (McGrath and McMillan 1995).
26
We aim to use the critical issues grid to determine the key factors to address in
the diffusion process of a new technology or adoption period of a ‘radically
new product’. These would form the platform to build the conclusions and
recommendations for a specific company for the specific market.
2. 7 Diffusion Theory and Crossing the Chasm
Technology adoption life cycles have traditionally been modelled by the Bass
(1969) model of diffusion of innovation. Although this approach has been
extended to include the impact of marketing variables, the essence of this
model still implies a single diffusion population. Mainly, the Bass model
implies that a new product adopter can spread his enthusiasm to anyone else in
the market. Recently however, Moore (1994) articulated a different theory of
the market adoption of high-technology products. While still segmenting the
market into innovators, early adopters, early and late majority, and
laggards, Moore distinguishes two clearly distinct diffusion populations. On
the one hand, technology enthusiasts (innovators) and business visionaries
(early adopters) jump early onto product bandwagons that may not be ready for
the mass market. On the other hand, the pragmatist (early majority) and
conservatist (late majority) segments wait until the product is accepted even
commoditized before buying. In a major departure from standard diffusion
theory, Moore asserts that the pragmatists of the early majority are not
influenced by technology enthusiasts or business visionaries. Therefore, the
major challenge lies in crossing the chasm between the early adopters and
the early majority. Translated into modelling terms, these assertions imply a
different set of diffusion equations than those in the Bass model.
27
Figure 2.6. Moore’s Diffusion theory
Source: Moore (1994)
2.7.1 Moore’s diffusion theory in more detail11
Moore (1994) articulates a theory of high-technology marketing strategy
centred on his view of the technology-adoption life cycle. Standard diffusionof-innovation theory articulates five phases or segments: innovators (this
segment does not create the new fashion or technology, but are the very first to
try it out – like the very first kids in school to wear a new fashion), early
adopters (the ones who spot new trends early and jump on board), early
majority (the first mass audience that turns a novelty into a fad), late majority
(the one who adopt a fashion so they don’t look old fashioned), and laggards
(the ones who would just as soon look old fashioned, but may buy if there is
nothing else in the store).
Moore’s adaptation differs from standard diffusion-of-innovation theory by
postulating different dynamics between phases or segments. The innovators are
equated to the technology enthusiasts who adopt technology based on its
"coolness" or power and are willing to patch together workable solutions from
whatever pieces are available. The early adopters are business visionaries, who
11
To give a better insight of the model, we have largely used the simplified explanations and
examples from Cooper and Noble (1999) in this section.
28
foresee an opportunity to establish high visibility and competitive advantage by
jumping early onto product bandwagons that may not yet be ready for mass
markets. In a major departure from standard diffusion theory, Moore asserts
that the pragmatists of the early market are not influenced by the technology
enthusiasts or the business visionaries. Pragmatists listen only to other
pragmatists. The conservatives of the late majority wait until technology is
commoditized before buying. The laggards are sceptics who may never join the
digital revolution of their own volition. Between the early adopters and the
early majority lies the chasm.
We will use the critical issues grid to find ways to cross the chasm in Moore’s
model, which we believe is appropriate in our case.
29
3. METHODOLOGY
In this chapter, we will describe the methods used in this research. Our aim is
to present which methods we used and why we chose particularly these ones.
This chapter also helps the reader to get an idea of how the research has
proceeded and has been realized. In this respect the methods and sources used
in data collection are also revealed. Finally, the validity, reliability and the
possible types of errors have also been discussed at the end of the chapter.
3.1. The Research Design
When we decided on the topic, the problems to attack and the purpose of the
study, we also started the thinking process to design the research, determine the
strategy and the methods to use in this study.
Yin (1994) states five types of strategy that could be deployed in a research:
experiment, survey, archival analysis, history and case study. Although there
are many factors to be addressed when choosing a particular strategy, three of
them are especially significant: the types of research problems, the extent of
control a researcher has over the actual events and the degree of focus on
contemporary versus historical events.
In the light of these, we decided to employ case study as the strategy in this
research. Below, we try to justify and detail this decision.
3.2 Why Case Study?
3.2.1 Case study defined
Yin (1994), focusing on the research process itself, defines case study as an
empirical inquiry that investigates a contemporary phenomenon within its reallife context, especially when boundaries between phenomenon and context are
not clearly evident.
30
Merriam on the other hand focuses on the end product and the unit of study and
states that the most defining characteristics of case study research lie in
delimiting the object of the study, the case.
The case itself is ‘a bounded system: the researcher can fence in what he/she is
going to study’. Hence, the case could be a person, a program, a phenomenon, a
group of people, a policy, an organization…
Our research concerns the development of a phenomenon, the wireless Internet
in an emerging market. In addition, the main problem is “how can a
telecommunications equipment vendor successfully implement business
development strategies in the rapidly growing Turkish mobile Internet market
and achieve profitable growth?” To examine this process and solve the main
problem, we have decided on using case study method as a research strategy as
the aim of the study is ‘to investigate a contemporary phenomenon within its
real-life context12’ and this phenomenon is intrinsically bounded in itself.
3.3. Why Ericsson and the Turkish Market?
The diffusion of the Wireless Internet and the effects of the emergence of this
new platform has been one of the most discussed issues after the ‘Internet
Boost’ of the 90s. However, there was very little academic research targeting
specifically this field. Thus, we have decided to study this phenomenon. As it is
generally the case in qualitative research, we used Purposeful Sampling
approach and selected the Ericsson subsidiary in Turkey as it reflects the
average phenomenon and situation of interest13. Another leading factor was that
Ericsson is traditionally a transparent company and has always been open in
sharing knowledge. Thus, this choice was convenient for us as well14.
12
As defined by Yin (1994)
Typical sampling
14
Convenience sampling
13
31
3.4. What Kind Of Case Study?
3.4.1 Characteristics of case study
Case studies can be distinguished, according to Merriam (1994), by their four
main characteristics, which are particularistic, descriptive, heuristic and
inductive.
Table 3.1 Characteristics of case study
1. Particularistic
–The case study focuses on a particular situation, event, program, or phenomenon. The case itself is important for
what it reveals about the phenomenon and for what it might represent.
2. Descriptive
–The end product of the case study is a rich, thick description of the phenomenon under study.
3. Heuristic
–The case study illuminates the reader’s understanding of the phenomenon under study.
4. Inductive
- This characteristic relates to the conclusions drawn from the case, which are derived by reasoning from a part
(the case) to a whole, from particulars to generals, or from the individual to the universal. That is the conclusions
are generalized.
Source: Yin (1994)
Throughout this study, we try to satisfy each of these characteristics.
3.4.2 Single-case vs. multiple-case studies
Case studies may include a single-case or multiple cases. For reasons of
convenience, we have decided to use a single case and generalize our
conclusions from this particular situation.
3.4.3 Intent of the study
Case studies can also be described by the overall intent of the study:
!"Descriptive case studies present a detailed account of the phenomenon
under study. They are neither guided by established or hypothesized
generalizations nor motivated by a desire to formulate general hypotheses.
32
These kinds of studies are useful in presenting basic information about areas
where little research has been conducted.
!"Interpretive case studies also contain rich, thick descriptions and they are
used to develop conceptual categories or to illustrate, support, or challenge
theoretical assumptions held prior to the data gathering. The model of
analysis is inductive in this kind of studies.
!"Evaluative case studies involve description, explanation, and judgement.
Different parts of the study reflect different intents. Telecommunications and
the Internet are the two most dynamic industries. Thus, it is extremely hard to
make meaningful and long-lasting generalizations. Due to that, our main aim
has been to provide the reader with an extensive description of the case.
Nevertheless, at the end we dare to come up with our own judgements and
conclusions. In this respect, we may refer to this study as an evaluative case
study.
3.4.4. Abductive approach
As mentioned above, the research area, mobile Internet, is a rather new
phenomenon and there is very little, if any, academic study concerning
specifically this issue. The analysis of such dynamic industries, especially
when a radically new product, an example of discontinuous innovations15 is the
issue as in our case, is rather problematic. When looking for theories to employ
in our study, we had difficulty in matching a relevant one with our case. Thus,
we have constructed our own theoretical framework by modifying and
integrating the existing ones. In that respect, one can say that in this study we
use an abductive approach, which is defined as building a case study on new or
developed theories as well as old theories16.
15
Innovations that change the dimensionality of the consumer decision and revolutionize product
markets as described by Cooper (2000)
16
Alvesson & Sköldberg (1994)
33
3.5 Data Collection
3.5.1 Qualitative vs. quantitative data
The aim of both the quantitative and qualitative research is the same: to provide
a better understanding of the problem and to form a firm basis out of which the
conclusions will be drawn. Case studies do not normally aim to generate
statistical data and to come to conclusions derived from it. Thus, unlike
quantitative research that aims to quantify the result and focuses on similarity
and width, case studies can be based on any mixture of quantitative and
qualitative evidence17. In this research, we rely mostly on qualitative data rather
than quantitative data. This is mainly due to the fact that the mobile Internet is
a very recent phenomenon and thus there is not much historical data or reliable
statistical information on this issue yet. However, we use statistical information
on the current situation of the market and industry in focus and quantitative
projections (though generated by private companies and mostly subjective) for
the future wherever appropriate.
3.5.2 Primary and secondary data
We rely both on primary and secondary data in our analysis, which form the
basis of our conclusions. Below the details of the data collection process are
given.
3.5.3 Primary data
When we started planning the data collection process for our research, we have
realized that there is very limited reliable secondary data source available on
the mobile Internet and the Turkish Internet market in general (Both the
wireline and wireless Internet). Having realized that, we understood we had to
generate most of the data, especially concerning the Turkish market, ourselves.
The easiest and fastest way to achieve this was to go to Turkey and meet with
the professionals in the industry.
17
Yin (1994)
34
We travelled to Istanbul in early October and stayed there for almost a month.
As Istanbul is the financial and business centre of the country almost all the
major actors in the mobile Internet industry are located in this town. This trip
was to a large extent financed by the Turkish subsidiary of Ericsson, Ericsson
Telekomunikasyon A.Ş.
During our stay, we conducted numerous interviews with professionals from
different parts of the industry. The results of these interviews constitute the
majority of primary data generated in this study. We can add our observations
and interactions with the society, and the consumers in particular, to that.
3.5.3.1 Interviews
As our aim in this study is to explore the diffusion process of the mobile
Internet industry as a whole, we have selected interviewees across a large
spectrum, which covers more or less the whole value chain of the industry. The
interviewees were professionals serving in Network Operators/Service
Providers, Equipment Vendors, Internet Service Providers (ISPs), Content
Providers, etc. Thus, a survey-like highly structured and standardized interview
format would not be convenient and feasible. Due to that, we have used a semi
structured interview format, which is a mix of more and less structured
questions18. Another factor that led us to use this format was the lack of our
pre-understanding of the subject and of the interaction between different parts
of the value-chain.
We have used an interview guide as a base in our interviews19. These questions
were adapted to the specific person depending on his position in his
organization, his knowledge and general attitude towards information sharing.
The duration of each interview varies between thirty minutes and one hour.
18
19
Merriam (1994)
See Appendix B
35
All interviews conducted in Turkey were made in person although we have had
mail correspondence with many other professionals in the industry in Sweden,
Finland and Denmark.
We have also had the chance to meet and exchange information with some of
the companies that are directly involved in mobile Internet industry or that have
products available on this platform.
Table 3.2 Interview Evaluation Table
Name
Gökhan
Karakuş
Organization
Superonline/
Incubator
Bora
Şahinoglu
Ali Kesan
YBS A.S.
Feyyaz
Atalay
Cenk Kırbaş
Rıza
Erkun
Ericsson Turkey
Ericsson Turkey
Ericsson Turkey
Cem Turkcell
Melih
Özdemir
Turkcell Group20
Sibel Köksal
Ericsson Turkey
Emre Yeşil
Ericsson Turkey
Yeşim
Ericsson Turkey
Title / Business Area Main Issues Discussed
Business Development Incubation, Access to Venture
Manager
Capital, The attitude of foreign
investors
President
Content
Providers,
Wireline
Penetration,
Vice
President
/ Consumer Products, Distribution,
Terminals
Trends in the Market, Competition,
Dep. Manager / Data The role of ISPs, Ericsson’s
Networks
situation in the market
Corporate
Mobile Overall situation of the Turkish
Internet Solutions
Market, Organization of the
Company,
Competition,
Infrastructure
Marketing / Product
The Role and the Future of Network
Development Manager Operators, Vertical Integration,
Business Models on the Mobile
Internet (MI) Platform
Business Development Turkish wireline Internet market,
Manager / Mobile prospects for the future, the attitude
Internet Solutions
towards MI in the Industry
Head
of
Direct Services appealing to the new
Channel
platform, consumer preferences and
attitudes
toward
MI,
killer
application
Product
Manager/ Ericsson’s position in the market for
Terminals
handsets
Manager / Corporate Brand
management,
HQ
–
20
This is a new organization still in the process of establishment, aiming to coordinate the activities
of the TIME related companies of the holding company. These are namely Superonline, Turkcell,
DigiTurk. This new formation was yet to be announced at the time this thesis was written.
36
Yalınkılıc
communications
Işıl Levent
İştim Account
Datacom
Mr. Dinçer
İştim Account
Mikal
Stenhamn
ICtech,
CEO
Instant
Context
Technologies
Subsidiary Relationships, Decisionmaking Process in Ericsson, Cultural
accord, Monitoring Competition,
Managing
the
Network
of
Relationships
Relations with the new mobile
operator Istim21
Relations with the new mobile
operator Istim
The Swedish Mobile Internet
Market, Competition, Financing the
New Technology, Barriers and
Drivers of MI in the Developed
Economies
Source: Own
3.5.3.2 How do we use the collected data?
We have grouped and analysed the data in accordance with our research model
presented in Chapter 2. We use this information throughout the following
chapters where we present our analysis. We do not tie each and every opinion
and information given in the analysis to a specific person or interview. We do
that only when a statistical data gained from the interviewee is used. The source
for the general statistical data concerning the whole industry, that has been
gained from our interviews within Ericsson, is not tied to individuals and is
referred to as ‘Interviews-Ericsson Turkey’. Unless otherwise stated, the reader
can take it for granted that the opinions and qualitative data given are a result of
our interviews with the industry professionals.
3.5.4 Secondary data
We have used online resources, previously written reports regarding the
industry, books, journals and information generated by companies within the
industry to present the background and the general outlook of the industry. We
have also used some material supplied particularly by the case company,
Ericsson. Reference to most of these resources is made in the following
21
Isbank-Italia Telecom consortium
37
chapters. We have also read many other articles and books to deepen our preunderstanding of the issue although reference to all these is not given.
3.5.5 Sources of data
A major strength of case study data collection is the opportunity to use many
different sources of information22. Thus, we have tried to use as many different
sources of data as possible in our data collection process. We believe we have
done our best to get a diverse portfolio of sources regarding both the primary
and secondary data. We have conducted interviews with people from different
parts of the industry. We have also managed to interview people from different
levels and parts of the case company in focus. When it comes to secondary
sources of data, we have used many different sources from different countries
generated by various companies concerned. However, we acknowledge that
there is always space for improvement when it comes to diversity.
3.6 Degree of Quality
Yin (1994) acknowledges the significance of four main standards throughout
the conducting of a research study: construct validity, internal validity, external
validity and reliability. We discuss each one in detail below.
3.6.1 Validity
Validity deals with how the research findings match with reality. It is divided
into three: construct validity, internal validity and external validity23.
3.6.1.1 Construct validity
Construct Validity deals with the ability of the researcher to establish the right
measures and framework for the concepts to be studied24. Using multiple
22
23
Yin (1994)
ibid
38
sources of evidence may provide high construct validity for a case study. We
have already discussed that above. Another issue concerning construct validity
is the overall framework used to study the phenomena in focus. We have tried
to be as clear as possible in defining the concepts and why we have particularly
used them to increase the construct validity of the study.
3.6.1.2 Internal validity
Internal validity deals with the question of how research findings match
reality25. A few issues arise when measuring internal validity such as (1) Do the
findings capture what is really there?, (2) Are investigators
observing/measuring what they do?, etc.
We have spent considerable effort to ensure that this report satisfies these
criteria. We have tried to preserve the logical flow and connection in our
analysis. However, in qualitative research reality is holistic, multidimensional,
and ever changing. It is not a fixed, stable and objective phenomenon waiting
to be discovered. Instead, reality changes over time and in accordance with the
context and the background and the mindset of the people that deal with it. In
short, in qualitative studies, reality is an interaction of the researcher with the
environment in focus. To ensure that we reflect the real situation of the industry
and the business environment the research deals with, we have used a large
variety of resources and held discussions with as many people as possible in
our interpretations and analysis.
3.6.1.3 External validity
External validity questions the applicability of the research findings to other
situations. In other words, it deals with the issue of whether the study’s findings
could be generalized beyond the immediate case study26.
24
ibid
Merriam (1994)
26
Yin (1994)
25
39
It is not possible to reach a statistical generalization from our study, as it is a
qualitative research. Case studies rely on generalizations of analytical nature. In
that respect we believe there is a possibility to generalize the results of our
survey for companies similar to our case company, that operate in a similar
business environment, namely an emerging market. On the other hand, the
industry we deal with is a rapidly changing and dynamic one. Thus, the readers
have to apply the main concepts to the situation they are in.
With this study, we have tried to take a step forward in exploring the diffusion
process of a radically new product in an emerging market. However, due to
limitations of resources and time, we have not come as far as we wish.
Nevertheless, the findings of this study, especially the parts where we deal with
the cultural barriers and consumer attitude towards the new high-tech products
could be generalized to a significant extent.
The research model we have used to make a comparative analysis and to form
an action plan based on it, is already a modification and combination of
existing theories. Thus, this model could also be used in a similar study.
3.7 Reliability
Reliability refers to the extent to which research findings can be replicated.
This criterion is rather problematic in the social sciences because human
behaviour/ observations are hardly ever static. In that respect, it is likely that a
researcher even if he/she follows the same procedures may reach a slightly or
sometimes significantly different result when repeating an earlier study.27
We believe that our analysis concerning the current situation of the business
environment has a relatively higher level of reliability. Our analysis concerning
the Turkish society and characteristics of the emerging markets could also be
considered more reliable. On the other hand the last parts of the reports are a
result of our own interpretations of the data collected mainly form the
27
Yin (1994)
40
interviewees and thus are largely bound to our own background and mindset.
We could consider these parts to be less reliable.
3.8 Various Types of Errors
In case studies, errors may occur especially in the data collection and the
interpretation process. In this study, we use many sources of secondary data. As
historical data is very limited on this new platform, the mobile Internet, much
of the numerical data used are assumptions and forecasts for the future. There is
a possibility that this data could contain some errors. To avoid this we have
tried to collect data from as many sources as possible and compare the data
given in each.
Concerning the interviews, there is a possibility that we have misinterpreted
some of the information given. We have tried to overcome this by recording
each interview and trying to decode them carefully.
Another possible factor that could have caused errors in some parts of the study
is that as researchers we are both natives of the market of the country the
research focuses on. This might have formed certain biases in the interpretation
process as well. On the other hand, this could also be considered as an
advantage in some instances.
41
4. MOBILE INTERNET
In this chapter, we will follow a descriptive approach in order to define and
clarify the main aspects of this new technology. We will also bring up the
development path of the market, particularly in Europe. We find it important to
establish our presentation on concrete basis by defining the technology at this
initial stage.
4.1 Definition of Mobile Internet
The newly emerged concept Mobile Internet has come to signify the
convergence of the two fastest growing technological phenomena of recent
years: the Internet and mobile telephony. Mobile Internet is simply an enabling
technology, a set of rules for transforming Internet information so that it can be
displayed on the small screen of a mobile telephone or another portable device.
It is the essential link between the Internet on the desktop and the increasing
capabilities of mobile phones, personal organizers and other wireless devices.
Within a few years, the consumers will be able to use wireless services to easily
check up on their stock portfolio, log on to their company intranet, check the
weather in cities they visit, and read about restaurants where they might wish to
eat. These developments are the result of improved mobile networks, the
emergence of open Internet-based standards, and better technology for handheld devices. Given this circumstance, the market for wireless information is
expected to boost in the next few years. There are rather strong drivers behind
this judgment. Sources of content are proliferating at an explosive rate, along
with Internet and e-mail usage. Meanwhile, the number of professional people
who spend time outside their offices is increasing, and they need portable
devices to stay in touch. According to an estimation made by Ericsson, there
will be nearly 600 million mobile Internet users by the year 200428.
28
Svenska Dagbladet, 14 November 2000
42
Many experts believe that m-commerce will prove to be the "killer application"
that will drive growth in this new segment of the mobile communication
platform after the market for conventional voice calls has been saturated.
However, the first question to be asked here is that the people can already buy
and sell online by using their desktop or portable computers, therefore what
will m-commerce basically offer the users? We will discuss this issue in more
detail during the following chapters. However, we should say that mobile
Internet and its killer application m-commerce would provide mobility for the
consumers in the first phase. People can take their mobile devices with
themselves more or less wherever they go, whereas the situation is a little
problematic for the devices such as desktop computers at their offices and
homes. Depending predominantly on this reason, some analysts believe that
within three years more people will be accessing the Internet from mobile
phones than from office or home computers29. In addition to the mobility
factor, we see the access to the real-time information as the competitive edge
for the mobile Internet over the conventional (wireline) Internet. In addition,
the penetration rate for the PCs is much lower than the mobile phone
penetration rate. This means that there are more people that may be willing to
prefer mobile Internet (Figure 4.1).
Figure 4.1 Number of Mobile subscribers vs. Desktop users
Mobile Subscribers and Internet Users (millions)
Number of Users
1400
1200
1000
800
Internet
600
Mobile
400
200
0
1995
2000
2005
Years
Source: “Understanding the WAP” survey by Financial Times, 14 June 2000
29
Financial Times, 14 June 2000
43
4.2 Relevance of the ‘Mobile Internet’ Concept
During our surveys and interviews for the preparation of this study, we have
encountered several discussions that are focused on the “mobile Internet”
concept. It has been mentioned that it is too early to pronounce this term while
the launch of the WAP protocol has just taken place. WAP protocol can be
accepted as a first step for the mobile Internet, but still it is much further from
accessing Internet via mobile phones. When WAP was launched, it was
mentioned together with the mobile Internet, which harmed the product image
of the WAP enabled devices. Although WAP is unquestionably an important
enabler for accessing information on the Internet and providing greater call
management functionality, there is a danger that user expectations have not
been managed appropriately. WAP is not a surfer’s remedy, nor it is a
substitute for other technologies, such as PC access to the fixed Internet.
There is a lot of confusion, among both users and the industry players
regarding what WAP is capable of delivering at the moment and in the future.
Only simple information services are currently available over WAP. There are
still several unresolved technical issues that are preventing delivery of services
that will add greater value, such as the efficiency of the access. These are
expected to be resolved by GPRS (General Packet Radio Service) and the
convenience of the terminals for mobile Internet applications.
Today, WAP technology is quite primitive compared to the coming
technologies that will enable us to connect Internet via mobile phones. For a
website to be displayed on the mobile phone’s screen, it needs to contain data
in a WAP format (WML - Wireless Markup Language). WAP is a kind of
enabling software that effectively allows simple menu-structured web pages to
be stripped of complex graphics and relayed to the mobile telephone30.
However, WAP services are delivered over the current GSM (Global System
for Mobile Communication). Therefore, it is an extension of the existing
technology and lacks the capacity to generate the mobile Internet revolution,
which will create value for the end users. WAP was nothing more than an
30
Financial Times, 14 June 2000
44
introduction for MI technology. We should still wait for the coming
technologies and a sufficient amount of WAP based content in order to browse
the Internet via cellular phones.
Controversial situation of the WAP technology lies behind this point where the
users have expected more things from WAP than it could really serve.
Consumers preferred WAP based devices in order to access Internet, but the
result was a frustration when they noticed that they could not surf the Internet
by using their devices. There has been a confusion of concepts. Consumers
perceived the meaning behind mobile Internet as wireless access to Internet,
where wireless Internet and mobile Internet are totally different concepts. In
this stage of technological development, “mobile Internet” should have been
named with another term, like NTT DoCoMo, Japan's leading cellular phone
operator did with the “i-mode” in Japan.
NTT DoCoMo has opened a new era with this new technology, which offers
continuous Internet access. Launched in February last year, it now has reached
to 16,359,000 million subscribers (as of December 17). This new service lets
the subscribers surf through a few hundred websites. These websites are linked
to NTT DoCoMo’s portal page where they are modified to be viewed via
cellular phones.
4.3 Background
In opposition to the development of the Internet, Europe left North America
behind in the growth of the mobile communication market. Therefore,
European market has an important advantage over North America in this initial
stage of MI. European m-commerce market is expected to grow from Euro 323
million last year to Euro 23 billion in 2003 and is currently about two years
ahead of the US in terms of development (Figure 2). 31
31
Durlacher Research (1999)
45
The reason behind this situation is that Europe has adapted the mobile
communication technologies in a more successful way than US did. Europe
could establish the infrastructure on a single standard called GSM (Global
System for Mobile Communications), whereas there is still not any unique
standard within US and the fact of local calls’ being included in the fixed fees,
neutralized the potential interest for the mobile devices.
Figure 4.2 The growth of European m-commerce market (1998-2003)
European m-commerce market (€ Billions)
Market Value
25
20
15
10
5
0
1998
1999
2000
2001
2002
2003
Years
Source: “Understanding the WAP” survey by Financial Times, 14 June 2000
Currently equipment vendors are creating over-hyped expectations on the
development of the mobile commerce market. However, mobile web browsing
will not become a reality before 2003 when the third generation mobile
technologies will be initiated.
In our opinion, the applications that provide differentiated facilities will benefit
most in the mobile Internet market. People access Internet and utilize its
benefits one way or another. However, there are several advantages of mobile
Internet compared to wireline Internet. The actors in the industry whether they
are equipment vendors, software manufacturers, content providers or network
operators will get the biggest share providing that they offer services that can
hardly be done via other medium to access Internet. We find the mobility and
possibility to send out real time information aspects of MI as two important
assets in the growth of the mobile Internet.
46
In addition to these factors, Durlacher Research (1999) mentions security and
convenience. It is accepted that bringing the cellular phones into play as credit
cards is much safer than shopping online using the conventional credit card
since the SIM (Subscriber Identification Module) card, provides authentication
of the owner and enables a higher level security than currently is typically
achieved in the fixed internet environment. Enhanced functionality that will
become available on tomorrow’s devices will offer convenience by providing
localization, instant connectivity and personalization. Localization of services
and applications will add significant value to mobile devices. Knowing where
the user is physically located at any particular moment will be the key to
offering relevant services that will drive users towards transacting on the
network. Instant connectivity to the Internet from a mobile phone is becoming a
reality already and will fast-forward with the introduction of GPRS (General
Packet Radio Services) services. Personalization is, to a very limited extent,
already available today. However, the emerging need for payment mechanisms,
combined with availability of personalized information and instant internet
access via mobile portals, will move customisation to new levels, leading
ultimately to the mobile device becoming a real life-tool.
The scope of the potential offerings coming with the new technologies could be
estimated by considering the position of today’s technologies on the MI
development path. According to Durlacher Research (1999), the development
of the mobile Internet will come forward in the following stages.
Figure 4.3 Mobile Internet development model
Value Creation / Business Activity
Interactivity
(Machine to machine, machine to person)
Transactions
(Voice / Data transactions on the Internet)
Information Channel
(SMS / WAP based)
E-mail
Complexity / Interoperability
Source: Adapted from Durlacher’s Mobile Commerce Report
47
It is obvious that the market is growing at a significant pace and it is still an
area waiting to be discovered by entrepreneurs. The authorities generally
discuss the future of this new technology, some approach in a sceptical way
while others prefer to be more optimistic. We believe that the market tends to
grow significantly, but the crucial issue is that which players in the telecom
industry will dominate this brand new market. We will continue by identifying
the potential players that are expected to emerge in the short-run.
4.4 The Mobile Internet Value Chain
In this section, we aim to introduce the value chain of this emerging platform.
Mobile Internet is still in its early phases. Although companies such as NTT
DoCoMo have managed to attract millions of users for their services, it is still
not clear which business models will emerge and how the revenues will be
shared among the actors of the value chain. Below we give brief information
about each part of the value chain.
Figure 4.4 Mobile Internet Value Chain
Mobile Internet Value Chain
Technology
Platform
Vendors
Content
Aggregators
Infrastructure
& Equipment
Vendors
Mobile
Portal
Providers
Application
Platform
Vendors
Mobile
Network
Operators
CUSTOMER
Source: Adapted from Durlacher Research (1999)
48
Application
Developers
Mobile
Service
Providers
Content
Providers
Handset
Vendors
4.4.1. Technology Platform Vendors
The technology platform vendors are delivering the operating systems and
micro browsers for mobile devices such as smart phones and communicators.
The battle for the dominating OS (Operating System) has been reduced to two
major camps of players, Microsoft and its followers with Windows CE on the
one hand and Symbian with Palm on the other hand.
The micro browser market is today largely dominated by Phone.com (formerly
Unwired Planet), who have gained support from all major mobile phone
manufacturers except Nokia and Ericsson, who are marketing their own micro
browser products.
4.4.2. Infrastructure Equipment Vendors
The leading suppliers for mobile network infrastructure equipment: Motorola,
Ericsson, Siemens, Nokia and Lucent, have developed solutions for mobile
data, mobile Internet and thus for mobile commerce. They are creating
significant hype around the entire topic and are driving the mobile industry
with the speed of innovation and new technology developments such as WAP,
HSCSD (High Speed Circuit Switched Data), GPRS, EDGE and UMTS. In this
sense, the technology is well ahead of the market since to a large extent
applications are yet to be developed which utilise these developments.
4.4.3. Application Platform Vendors
A particular key driver for providing wireless Internet applications is the
availability of middleware infrastructure, i.e. WAP gateways at either the
mobile operator’s site or at the corporate customer’s site. The companies, who
have developed their own WAP stack include Phone.com, Nokia, Ericsson.
In order to drive the industry and to formulate standards, interest groups have
been formed in addition to ITU (International Telecommunications Union),
ETSI (European Telecommunications Standards Institute) and the GSM MoU
(Global System for Mobile Memorandum of Understanding), such as the WAP
49
Forum, the Mobile Data Initiative, Bluetooth Special Interest Group, GAA
(GPRS Applications Alliance) and the UMTS Forum.
They are setting de facto standards by assembling the key players and agreeing
workable development conditions much faster than the traditional standards
bodies.
4.4.4. Application Developers
Applications for the mobile environment are currently being built primarily on
Windows CE, Symbian’s EPOC 32, or Palm OS technology platforms.
Currently, most of these applications are used off-line rather than via the
mobile network. However, WAP is receiving increasing support from
developers, who are going initially after the smart phone market rather than the
PDA market. This makes a lot of sense if one compares the number of PDAs
sold in Western Europe (1998: 1.4 million) to the number of mobile phones
(1998: 90 million).
4.4.5. Content Providers
Technologically advanced content providers are moving into the mobile space
to be ready for when mobile commerce happens. They are using a variety of
distribution channels for their products. As the saying goes “when content is
king, distribution is King Kong”.
For example, Reuters is delivering its information via partnerships with
Ericsson and Nokia as well as via existing portal sites, such as Yahoo! and
Excite, who are building mobile portals as well. Additionally, Reuters is
building its own mobile portals in a number of markets, having recognised the
emerging importance of mobile as a distribution channel.
Charging for content is difficult in a mobile Internet world, even though users
are accustomed to paying for value-added mobile services. One of the main
problems in charging the user for content is that the Internet users are used to
50
the content that comes to their PCs free of charge. It will be extremely hard to
convince them to pay for similar content.
The easiest way to create revenues for mobile information providers is by
taking a share in the call revenues. However, this model is classic first
generation and it is generally accepted that differential and dynamic charging
structures (based on value) will rapidly evolve once the industry takes off. In
future, advertising, sponsoring and subscription models will also be realised.
4.4.6. Content Aggregators
A new category of content aggregators is starting to emerge that repackages
available data for distribution to wireless devices. The added value is in
delivering content in the most appropriate package. There are already solutions
that provide real-time information from the futures and options markets as well
as financial market, company, political and general interest news. It is also
possible to add, for example, trade data from exchanges and clearing houses the
world over.
4.4.7. Mobile Portals
Mobile portals are formed by aggregating applications (e-mail, calendar, instant
messaging etc.) and content from various providers in order to become the
user’s prime supplier for web-based information that is delivered to the mobile
terminal. Mobile portals are characterised by a greater degree of personalisation
and localisation than regular web portals, since the success of mobile Internet
applications is dependent on ease of use and on delivering the right information
at the right moment. This is referred to as the value-for-time proposition
and, moving forward, might be a key dynamic in determining the success or
otherwise of mobile (and indeed other) services. It has been estimated that
every additional click-though which a user needs to make in navigating through
a commercial online environment with a mobile phone reduces the possibility
of a transaction by 50%. Mobile operators across Europe have put first portals
out, e.g. Telia of Sweden with its MyDOF (My Department of the Future) and
Speedy Tomato, Sonera with its Zed.
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4.4.8. Mobile Network Operators
Operators, such as Mannesmann, Orange, Telia or TIM (Telecom Italia
Mobiles), are best positioned to benefit from the introduction of mobile Internet
services, because they already own a great deal of end user information and
close ties with the customer, including billing relationship. Most operators aim
to position themselves in a key role for mobile commerce by owning the portal
and participating in the revenues accrued by services over its network. Those
revenues will be significantly higher than the sheer increase in call minutes or
volume, particularly as the incremental price per minute falls to zero. The
mobile operator has the opportunity to become an ISP (Internet Service
Provider) in the sense that the mobile network is going to be built on IP
technology with UMTS and that the operator will provide a transport pipeline
for content services. Therefore, numerous operators are trying to move up the
value chain.
4.4.9. Mobile Service Providers
The phenomenon of mobile service providers as an intermediary for faster
marketing and sales of mobile phone contracts and terminals has been seen in
many European markets. The service provider has the contract and billing
relationship with the customer, but does not own any infrastructure. They are
buying the services at a discount of typically 20-25% and can sell them under
their own brand. The mobile network operator determines the functionality of
services and therefore dominates the information displayed on the screen.
However, control over the billing relationship puts the service provider in the
position to offer a wide variety of services including m-commerce applications
by charging goods and services directly to the phone bill, if the network
operator has provisioned for it.
4.4.10. Handset Vendors
Handset vendors are critical in the value chain. Generally, customers do not
shop for a particular service provider or network operator, but rather for the
52
handset brand. The emergence of the mobile phone as not only a consumer
electronic device, but also as something personal such as a pen or watch, has
created lots of value for the handset brands.
In mobile commerce, the handset vendors are a bottleneck in bringing new
devices to the market, that support not only SIM (Subscriber Identification
Module) Toolkit, but more importantly WAP, GPRS and W-CDMA
(Wideband-Code Division Multiple Access). Innovation cycles are becoming
continuously shorter, but significant mobile Internet take-off will not be
realised before the right end-user terminals are widely available. The handset
vendors have to develop a wider variety of products, as future applications will
require different combinations of features. Handsets, optimised for music
download and listening, video streaming and watching, computing, game
playing or just managing one’s life will become possible choices.
At the same time, mobile handset manufacturers are coming closer to the
traditional PDA manufacturers, as they are both offering smart phones and
communicators with combined functionality. The initial prices for the new
generation of GPRS compatible devices are expected to be significantly higher,
which might act as a barrier in the mobile take-off.
4.4.11. Customer
For consumers, mobile Internet will be a new experience, since thus far most of
them have used their mobile phones primarily for voice, and more recently for
SMS messages.
The first to utilize the mobile Internet is likely to be, as it is the case for almost
all technological innovations creating consumer services,
• Teens (18 years and under)
• Students (19-25 years old)
• Young business-people (25-36 years old)
53
The business market can be divided into three main categories of organisations
that possess distinct m-commerce needs:
• Sales-driven organisations, such as manufacturing companies and banks
• Service-driven organisations, such as consultancies and system houses
• Logistics-driven organisations, such as taxi companies or courier services
Depending on which segment it falls under, a company will become more
likely to use a specific mobile Internet application, such as CRM (Customer
Relationship Management), fleet management or integration of mobile devices
into corporate ERP (Enterprise Resource Planning) systems.
Finally, it should be pointed out that payment agents play an important role as
an enabling force in the m-commerce value-chain, although the dominant mode
of payment for m-commerce services has yet to be determined. Banks have
traditionally been the natural providers of payment agent services. Now they
are becoming increasingly concerned about the future role of mobile operators,
who allow their subscribers to charge purchased goods and services to their
telephone bill (e.g. Sonera). Therefore, the banks themselves are becoming
front-runners in mobile commerce in order not to become disintermediated.
Merita Nordbanken and SEB of Sweden for example have invested
considerable amounts and are trying hard to establish their own payment
systems for e-commerce and m-commerce payments, while Visa and other
payment services giants are all trying to position themselves on this new
platform.
From here on, we will aggregate these group of actors that are part of the value
chain into four segments for reasons of convenience and simplification. These
are
!"Equipment vendors (1,2)
!"Mobile Network Operators/ Internet Service Providers (ISPs), Mobile
Service Providers (8,9)
!"Application Developers/ Content Providers (3,4,5,6,7)
!"Customers
54
4.5 Trends
As the telecommunication industry moves into a convergence with the Internet,
services are becoming increasingly important as a way of adding value to basic
network connection and of winning and retaining customers in an increasingly
competitive environment. For instance, network operators in several countries
offer messaging services in order to provide the end users with a variety of realtime information. In the further stages where personalization and positioning
features of the new technology have been established, the users will encounter
instant messages related to their personal interest and their current positions.
Correspondingly, vendors who used to simply sell boxes are becoming
increasingly concerned about after-sales service and support, and partnering
with service providers to ensure their products find a market. Most of the
equipment vendors have already been providing network management and
outsourcing services.
All these trends mean that the division between product and service is
becoming blurred, while product vendor and service provider are getting closer
for collaboration.
Similar to the Internet, the mobile Internet will consist of a wide variety of
services and applications. However, it should be noted that the mobile Internet
will not be a simple copy or an extension of the Internet. Instead, applications
for the mobile Internet will mainly capitalize on the fact that its users are
mobile and continuously connected to the network. In time, today’s Internet
will probably become a subset of these new services.
Different from conventional Internet, MI is appealing because it gives the
opportunity for “one-to-one” marketing by offering customer location
information, constant connection to the Internet and maybe most importantly,
personalized customer interaction. Personalisation is a further stage for this
moment, since the providers will initially implement customisation.
Customisation is not a new business model; nevertheless, it may offer an
55
important opportunity for the mobile Internet. It is taken for granted that in the
future, the customers will demand more customized wireless Internet services
that will give them more localized, personalized and real-time information. The
reason behind the importance of customisation as a potential competitive
advantage is that it simplifies the ordinary personal processes for the
customers, which will provide both cost and time efficiency.
More important than the other key success factors, customisation and
personalisation count for each of the players in the market. Network operators
will have to offer different service portfolios for different types of subscribers,
content providers, portals and ISPs have to process the personal information of
the customers in an optimal way and equipment vendors should be able to
launch terminals with appropriate screen formats according to the likes of
different consumer groups.
Covering the essential concepts and trends about the industry, a general insight
to the mobile Internet has so far been present, which will be the starting point
for our further analysis of the market. In the following part, we will go deeper
into the features that will affect the future of the market while specifying the
key success factors for the players in the industry.
4.6 Drivers and Barriers of the Mobile Internet
4.6.1 Drivers
4.6.1.1. Mobility
More and more people in today’s business life are spending time during
business travels. Offices have begun to play a hub role where the information is
gathered but processed by employers travelling around. Given these
circumstances, the interaction between the office and the employees comes out
as an important issue. The opportunity to access information from any point
and at any time is obviously unquestionable.
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This is the point where mobile Internet will show up before the conventional
Internet. Internet together with its killer application e-commerce has brought a
lot to our daily and professional lives. However, being connected to Internet via
fixed line was a factor that hinders our mobility, which is crucial for the given
reasons. The desire to take the technology with us to the places we are
travelling has revealed some important results such as portable personal
computers. However, accessing information via these portable devices cannot
only be problematic but also it is away from being economical. Eventually, the
technology will allow us to access Internet directly by using our mobile phones
without using any other intermediary.
4.6.1.2. The maturity of the mobile phone market:
The mobile phone market particularly in Europe has been matured and both the
equipment vendors and the network operators are looking for new ways of
making money from existing subscribers.
For instance, Network operators are facing decreasing ARPU (Average
Revenue Per User). Price erosion for mobile voice service is faster with third,
fourth and sometimes fifth mobile operators having entered the market in many
European countries. There is a common understanding throughout the industry,
that within a 2 to 3 year period mobile tariffs will come down to the same level
as fixed tariffs32. They also need to find out whether people really will use data
on the move.
In addition to this factor, mobile phone manufacturers and vendors need a
reason for people to replace their phones. Mobile Internet provides this reason
because customers need phones with bigger screens. The drive from operators
and service providers will mean that new services are provided quickly - and
promoted strongly.
32
Durlacher Research (1999)
57
4.6.1.3. Convenience
As we have mentioned before, mobile Internet is relatively more convenient
when it is compared to traditional access to the Internet. Not only the matter of
portability but also the opportunity to acquire the most recent data about a
person’s situation makes mobile Internet more useful and practical.
Mobile Internet also shortens the procedures to utilize the new technologies.
Customers need not form new relationships. For instance, in conventional
Internet access, one should get in contact with two different actors, which are
the phone company and the ISP, but in mobile Internet, many relationships will
simply be extended with the current cellular device company.
An extensive and flexible billing system is built in already for cellular which is
very valuable, as most countries do not have the same credit card penetration as
the US and the UK. The e-cash or m-cash usage ratio could therefore be
significantly better on mobile if instead of entering your name and several
types of contact detail plus bank details (all of which could take a few minutes),
you simply enter a four digit code which triggers all the relevant information to
be sent automatically from your mobile SIM card.
4.6.1.4. High levels of mobile data usage
It is believed that mobile Internet and m-commerce will boom particularly in
Europe because of since the consumers’ tendency to use mobile data. As it is
depicted in Figure 1, the penetration rate of the mobile phones is incomparably
higher than the PC penetration. Given that the technology has provided the
necessary arrangements to transfer all the Internet facilities on the mobile
phone screens, there will surely be a huge shift for the mobile devices and
services.
We also see that in contrast to the controversial security issues, e-commerce
has lately achieved a relatively good progress in Europe (although it is still
significantly behind U.S.A.), which is a good sign for the future of the m58
commerce since it is generally claimed that m-commerce could be a much more
secure way of shopping online compared to e-commerce.
4.6.1.5 The effect of the equipment vendors
Mobile Internet comes out with new opportunities for the equipment vendors
where they are able to develop their products and reach a higher customer base.
Considering this opportunity, equipment vendors have pushed WAP Gateways
and micro-browser enabled smart phones, which have important contributions
in the development of mobile Internet.
4.6.1.7 Charged per transaction
Currently, one of the things that may sound challenging could be the pricing
system of the mobile internet, since it will not be advantageous if the
subscribers are charged per minute as we know it today from the GSM system.
However, with the arrival of the GPRS technology, this billing system will be
changed. Instant access to Internet is essential for this new system and in order
to provide this facility, the Internet requires an “always on” mode.
Therefore, the subscriber will be charged for each transaction completed
instead of the minutes connected to the Internet. On the other hand, Durlacher
predicts that the new pricing model favoured by the operators will likely be (in
the initial instance at least) a series of flat monthly rates for a certain amount of
traffic. The operator needs then only to roughly control the traffic volume to
ensure that it is not too far over the allotted volume.
This billing system can both be an advantage and a disadvantage for the
subscriber. In the transaction-based billing system, the subscriber is charged
per transaction whatever the transaction is. This could be a sale/purchase of $10
or a $1000 good. Whatever the value of the transaction is, the subscribers will
be charged with the same fee. Again, NTT DoCoMo comes out with a more
practical and rational solution where it charges its subscribers on a value-based
billing system. This would relate to various price tags for certain services
whether they are stock trades, e-mail or maps for example.
59
Transaction based billing system is a good solution for encouraging consumers
to utilize mobile Internet, however as the subscribers begin to pay their
transaction-based bills, the question of value will emerge in the minds of the
consumers. Therefore, we believe that network operators should eradicate the
transaction based billing system stage and employ directly a value based billing
system.
4.6.1.8 Opportunities coming with UMTS33)
With the release of the UMTS technology, mobile Internet will be redefined.
UMTS will provide key benefits for the equipment vendors and the operators.
There is a strong drive behind the UMTS technology since it introduces an
architecture that will considerably reduce the operators' costs, including
equipment, network deployment and maintenance.
UMTS also comes with opportunity to quickly provide value added services
and create new service revenue streams as a result of its flexible structure in
service creation especially in the area of Internet integration. Different from the
former technologies, UMTS is an effective way to make integrated services
such as multimedia available to mobile users.34
4.6.1.9 Security
Online security for the mobile devices is being carefully designed to make sure
that mobile phones and other wireless devices will not be as vulnerable to cyber
vandals.
Security ranks nearly as high as ease and convenience for users of mobile
phones. PCs were not designed with secure network use in mind, but mobile
phones have security built in. Internet access appliances, Net-enabled cell
phones and other personal communicators offer far more security than today's
33
34
Universal Mobile Telecommunications System
Web site of the "Third Generation Partnership Project", http://www.eocenter.com/
60
PCs. They can use tamper-resistant identity chips, protected by a password, and
will eventually be suitable places for keeping digital money35.
4.6.1.10 Cost of the Technology
A mobile phone is less expensive (EURO 150 vs. EURO 1000) than a PC. This
argument carries even greater weight outside Europe and the US, as the cost of
a PC is about 3 percent of the average GDP/capita in US where it is 20% in
Latin America.36
4.6.1.11 Real-time Information
Mobile offers a range of location based services such as “where is my nearest
restaurant” which fixed cannot. A mobile phone is also with a person almost 24
hours a day, whereas a person is only exposed to a home PC or a work PC for
more limited periods. The phone number can also double as the email address
making it easy to remember.
4.6.1.12 Personalization
Customisation will be a natural outcome of the mobile Internet and all the
actors in the industry will be keen on customizing their products and services
but the competitive edge lies in the extent that they can personalize their
offerings. The SIM card enables personalization that can be easily transferred
even on upgrading a phone. The consumer should access the desired
information in the least time possible. Therefore, the profile of the customers
now gained an additional importance. Information such as the identity of the
consumer, the place he/she lives or visits are crucial for these actors. In this
sense, network operators will play one of the key roles since they already have
such information about their subscribers.
35
36
Ericsson corporate website, http://www.ericsson.se/
Interviews, Ericsson Turkey, October 2000
61
4.6.2 Barriers
4.6.2.1 Current Technical Infrastructure
There are considerable quality and reliability issues facing mobile Internet
whether for m-commerce or data, the services are not tried and tested. Even for
prolonged voice calls, most users still prefer to use a fixed line because of its
superior quality. Many transactions, which are begun on the fixed Internet, are
not completed and slow speeds probably bear a high degree of responsibility
for this. In which case, mobile could see even fewer transactions completed, as
many will be time sensitive.
In addition, there is another factor on the terminal side: using the mobile phone
more will mean more recharges of the battery, which is a major inconvenience
unless battery lives are greatly extensive. Additionally, complicated B2B
transactions are not suited to small screens and are unlikely to be made on the
move.
4.6.2.2. Earlier Investments
Corporations and governments have already made considerably high levels of
investments in fixed Internet. Some companies or individuals may regard
wireless Internet as a candidate for substitution rather than a complement and
therefore be reluctant to invest.
4.6.2.3. The advantage of fixed lines over mobile networks
Faster speeds will always allow fixed line operators to enable the newest
services before mobile operators. However, this is only an advantage of the
fixed line operators and in the case that they are not exploited, the mobile
technology tends to retain its popularity over fixed line services.
62
4.6.2.4. Changing attitudes of the financial institutions
3G technologies, which will offer the base for the development of mobile
Internet and its various applications, have driven considerable attention from
different segments of the markets, particularly from the financial institutions
during the days the technologies had been introduced. Financial institutions
have been eager to throw money in these technologies, considering that it will
be the second profit-generating source after GSM technology in telecom
industry. However, the high costs of 3G mobile phone licenses warned the
operators about the fact that in the mid-run, amortizing these investments is
remarkably difficult. Therefore, banks’ attitudes are also expected to change,
since their shareholders tend to turn their backs to this once popular sector.
4.7 Dynamics of the Mobile Internet in the Developed Markets
In this section, we define the general norms for the mobile Internet in
developed markets by trying to clarify how the market reached today’s position
and what are the major trends that will shape the industry in the future. We will
also study the key success factors for different players in the market together
with the substitute technologies that are likely to replace the GPRS and third
generation mobile telecommunication technologies.
Therefore, we will spot the growth markets within the industry and use our
perspective of the future market to help Ericsson Turkey map out how its area
of expertise will fit into the overall scheme of telecom after a detailed analysis
of company’s business environment together with our outcomes of the industry
analysis in the domestic market.
4.7.1 The situation of mobile Internet in the developed markets
We will basically cover the leading telecom and IT markets in Europe and give
slightly less importance to the United States market, since the development in
the market is much more remarkable in Europe than it is in US. It is not
63
questionable that US has always a leading role in the Internet revolution.
However, in mobile Internet, which is the next big Internet development. US
trail behind Europe. Therefore, we find it more suitable to study the West
European market, Scandinavia in particular.
4.7.2 Background of the European mobile telecommunication market
Before getting deeper into the current market structure and the future trends, it
will be appropriate to state how the market has reached this stage and what
were the major advantages on the way to develop the mobile communication
technologies.
During the early 1980s, European regulators mandated a uniform technological
standard for digital mobile communication, which is named as GSM (Global
System for Mobile Communication) and they have done the same for the next
generation of phones, which will enable high-speed data transmission and a
much wider range of multimedia services. It could be said that the essential
reason behind the faster growth of the market compared to US is the existence
of this single standard, which enables the users to communicate in different
countries within Europe by using the same device. A single standard also
created economies of scale for the players in the market such as equipment
vendors, operators and service providers, which could sell their products to
many more consumers. As a result of this situation, the mobile phone
penetration rate has peaked in Europe. Almost 70 percent of the population
owns a mobile phone in the Nordic countries and some 50 percent in Italy,
compared with just over 30 percent in the United States37.
4.7.3 Mobile Internet: a saver for the equipment vendors?
Mobile Internet could be reflected as a last-minute help for various players in
the industry, since the market for mobile communication has tended to mature
in several Western and North European countries. The technology that will
37
The McKinsey Quarterly, 2000, Issue No.2, p. 43–45
64
transfer the virtual platform into our small devices opened a new era. The
current situation of the mobile Internet is rather controversial. The critics that
see no future in mobile Internet have made a fundamental mistake in evaluating
this new technology within today’s technological capacity framework. The
major points they identify concentrate around the security issues, together with
the insufficient number of WAP-enabled Internet websites. Cost of services
provided is another matter of concern for these critics. Additionally, they could
hardly accept the idea of cellular devices being used as credit cards, since the
treasury and the banking industry in several countries will not be willing for a
change in money and its presentation or handling.
We prefer to see the picture from another viewpoint. As we have mentioned,
these critics have been raised within then pre-WAP, WAP or second-generation
mobile communication technology framework. GPRS and later coming third
generation technologies will resolve these highlighted problems to a large
extent. The content providers, ISPs and portals have already begun to establish
WAP enabled portals and WAP pages. Cost of the services provided could be
rather costly when we consider that the user will try to access the Internet and
perform several transactions via his/her mobile phone over the existing GSM
technology. However, GPRS and 3G technologies offer a new billing system
for the users, which is transaction-based rather than time-based. Namely, the
subscribers will be charged for each transaction accomplished, different from
today’s charging per minute system and the Internet via mobile phone will have
an “always on” system. The concerns about the attitude of the treasury and the
banking industry in several countries can also be accepted as irrational, since
the services such as credit cards and ATMs create notable costs for the
financial institutions. We believe that, in contrast to these concerns, these
institutions will support the launch of new technologies and contribute in the
development of cellular devices to be used as mediums for payments.
As it is portrayed, there is an important growth potential for the market.
However, the current situation is relatively complex as well as it is promising.
It is still not clear which player will generate the largest share of the total
revenues and which kind of applications will be the edge. It is predicted that mcommerce will be the first killer application to drive the market. M-commerce
65
revenue in Europe is expected to top $ 45 billion by 2005 38and other analysts
predict worldwide transactions to generate more than $ 100 billion by the same
year39.
4.7.4 General norms
As mobile Internet evolves in this initial phase, the players in the industry are
aware of the fact that, it is still an undiscovered era and the only way to attain
the most and face the least risk is to collaborate with the others from different
segments of the market. Companies are coming together to form strategic
partnerships in order to hedge the risks of this emerging market and enhance
their competitiveness.
Ericsson and Nokia, as being the leading equipment vendors in Europe, needed
to form such alliances. Ericsson preferred to collaborate with Microsoft for
“end-to-end wireless Internet solutions” where Nokia participated in the
Bluetooth interest Group that includes IBM, Ericsson, Intel and Toshiba, which
will help the development of the Bluetooth technology with the contributions of
the members40.
The structure of the mobile Internet market in Europe could be figured as a
pyramid in order to identify the position and importance of each player (Figure
4.5).
Hardware and technology vendors, the companies that, which supply the
physical infrastructure for mobile networks and have developed enabling
technologies such as WAP, are placed at the base of the pyramid, since they
have primary importance as being the starting point for the market. The leading
hardware suppliers include digital mobile phone manufacturers such as
Ericsson, Nokia, and Motorola.
38
Interviews – Ericsson Turkey, October 2000
Wireless Review, 01 September 2000
40
Nokia corporate website, http://www.nokia.com/
39
66
In the middle, we have the software suppliers developing wireless
communication operating systems to run on the next generation of hand-held
devices. In fact, most of the hardware providers have also branches that provide
software solutions; therefore, in addition to Ericsson, Nokia and Motorola the
companies such as Psion, Matsushita and Sony are also operating in the market
under Symbian partnership.
Figure 4.5 The structure of the Europe Mobile Internet Market
Network Operators
Second Tier Software Suppliers
Software Suppliers
Hardware and Technology Vendors
Source: Depicted in regard to the information obtained from Financial Times, 14 June 2000
A second tier of software companies, including Palm Computing, AvantGo,
Symbian, Microsoft and Phone.com, are the players, which offer applications
for the end users, such as e-mail and web browsers. At the top of the pyramid,
we have the mobile phone network operators like Vodafone, Telecom Italia,
Deutsch Telekom and others, which are expected to deliver content and valueadded services such as news, share quotes, timetable and weather data to
mobile devices with WAP. This group is perhaps the least well defined,
however it could include the network operators themselves, content providers
such as Reuters and Bertelsmann and other companies from the retail and
financial services sectors. At first, the most popular mobile Internet service is
likely to be e-mail. SMS (short message service) messages have proved a big
success in the Nordic nations and volumes are growing rapidly throughout
Western Europe.
67
As we can see from this picture, the network operators and content providers
are gathered under the same roof in this structure. Namely, network operators
are also expected to play a role as content providers, which is rather different
from our observations in Turkish market, where these two players function
separately from each other. However, in case the content providers in Turkey
fall short in performance to provide the necessary content, it will be the
network operators that will act to rehabilitate the situation. At least, one of
these players will shoulder this task so that they can generate revenues and
network operators are the closest address for this task after the content
providers and ISPs.
However, the question of which layer of the pyramid will be the profit centre is
still waiting to be answered. As we can see for the moment, the first revenue
generators will be the mobile network operators as a result of the extra airtime
traffic on their networks. Besides, they have several more advantages,
including enabling contact between the merchants on the Internet and the end
consumers. Their customer knowledge database is another advantage, since we
emphasized personalization as an important competitive advantage in the
mobile Internet market.
4.8 M-Commerce41
M-commerce could be a real “killer application” in the development of mobile
Internet. Actually, m-commerce is nothing more than extending e-commerce to
mobile phones. It is important because it represents the extension of the
Internet beyond the static terminal of the PC or even the TV set into a more
dynamic ‘anytime, anyplace, anywhere’ context.
Like e-commerce, there is no precise definition that encompasses the scale or
scope of the m-commerce market. However, basically it is the use of a terminal
(telephone, personal digital assistant, PC device or custom terminal) and public
mobile network to access information and conduct transactions that result in the
41
Mobile E-Commerce
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transfer of value in exchange for information, services or goods. M-commerce
is an important driver behind mobile Internet in Turkey. By 2004, there will be
over 30 million mobile phone users and the customers will tend to adopt this
new hype as a result of their earlier e-commerce experience.
The key reasons why various players are eager to enter this market are the new
revenue opportunities and the potential to acquire new customers and retain the
existing ones. Although a large number of applications will succeed in many
markets, real confusion and uncertainty exists regarding what will be successful
and who will make money from which m-commerce applications. Considering
this complex situation of the m-commerce market, we should again point to the
fact that it requires close partnerships between a series of players to make the
applications work. No single organisation has all the skills and resources
needed to deliver the end-to-end experience.
4.8.1 The scope for growing m-commerce
M-commerce will play best in those areas where it can emphasise the core
virtue of mobile networks, which has to do with the convenience of the
terminals used. Depending on the regional market, consumers are already using
their phones for a broad range of mobile e-commerce services: banking,
monitoring stocks and shares, ordering theatre, cinema & train tickets and
gaming. We also find e-cash, where the consumers could use their cellular
phones as credit cards as a suitable application for the large metropolitan areas
in the world such as Istanbul where parking machines could be a serious
problem from time to time. Another place for this application is thought to be
the gates on the pay-highways, which are serious threats of traffic jam.
However, these ideas are currently difficult to implement because of several
reasons that will be raised in the Industry Analysis part.
We not only indicate collaboration as a strategy for the actors in the market but
we also see it as the future situation of the market. Because of the mentioned
interdependence, it is not difficult to estimate that network operators and
content providers will cooperate. However, equipment vendors are another
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important part of this picture that has been neglected by many authorities in
mobile communication. In fact, equipment vendors outline the point where
wireless Internet begins. Network operators will be able to provide services as
long as their technological structure enables that content providers and ISPs are
able to create revenues as long as customers access their portals. Technology
provided by the equipment vendors is the key through this value chain.
Therefore, we find equipment vendors as the most important part of wireless
Internet.
The availability of the handsets, coupled with the introduction of faster access
speeds and response times, will produce the necessary conditions to strengthen
the take up of wireless Internet services. Many of the barriers to adoption, such
as slow access speeds, will be eliminated.
4.9 Key Success Factors
Partnering is the major key to getting a piece of the transaction revenue from
mobile Internet. Network operators will definitely want to retain all customer
information in hand, since it is an important to achieve competitiveness.
However, ISPs really know a lot about the consumers in terms of web traffic. It
will be the equipment vendors who will provide the technology and modify the
user interface in accordance with the customer information, like organizing the
screen format according to different types of users These will enable the users
to access the desired information with the least number of transactions and
minimize the airtime fees. Therefore, it is clear that each player has some
materials that are complementary with the others.
Collaboration among different players in the market will also raise the quality
of the service provided, since, the content provider’s contribution will bring the
rich content, network operator’s contribution will ease the personalization
process for the customer, and the equipment vendor’s contribution will bring
the new technical base for faster application speeds.
70
Customisation and personalization is another matter for concern. Mobile
phones, being a personal identity, will become more personal as the services
provided are customized. From the user interface to the real time data, the users
will demand services that provide solutions for their instant situations. Being
able to customize where they want to go first and fastest is a huge benefit for
the users.
When the speed of the application comes into question, we believe that network
operators have an additional task to provide this facility for the customers. The
amount of bandwidth will be steadily enlarged with the coming technologies.
However, operators should be cautious in the transfer of this enlarged
bandwidth to different terminals. For instance, a voice call consumes only 8
KB to 13 KB per second, so it may not be economical to provide much higher
bandwidths for the data users. Moreover, for some Internet services, a lower
service quality can be provided. Non real-time services such as e-mail can
technically be limited by the bandwidth that is left over from other users,
although practically this may mean that those services will be unusable during
busy calling hours. If this complex resource-rationing problem could be solved,
the necessary base to provide faster services will be obtained.
4.10 The Business Models
As we see, the equipment vendors are generating their revenues mainly from
the network branch of the business, since the handset is not profitable enough.
Today, most of the equipment vendors still give importance to the production
of the handsets because the network business will not develop unless the
handset market expands, additionally vendors use the handsets as a branding
and advertising medium, which they can use them in other business areas.
Roughly, we can say that 70% of Ericsson’s sales come from network business
and the remaining 30% comes from different business segments including
consumer products, which have around 20% share in total sales42.
42
Ericsson Interim Report, Nine months ended September 30, 2000 (October 20, 2000)
71
However, we think that equipment vendors might need to sacrifice some of the
revenues generated from the network business through their partnerships with
the operators in order to be successful in the mobile Internet market. We
believe that network operators will achieve the most from the market during the
development stages of the mobile Internet. Therefore, in order to increase their
total revenues, equipment vendors, ISPs and content providers should learn to
collaborate with the network operators. It is the network operators that have the
necessary customer information in terms of the wireless Internet. By creating
synergies between these actors, it will be possible to create value for the end
customers with relatively lower costs. In order to do that, these actors could
establish a common mobile portal, which will be supported by the resources of
each partner. Moreover, as a result of value created, there will be additional
customer demand for the handsets, which may cover the amount sacrificed
from the network business revenues.
Mobile portals will generate 29% of their revenues from subscriptions and 70%
from the transactions. On the other hand, the rate of the advertisement revenues
will show up as 1%, taking NTT DoCoMo’s i-mode as a reference, where
advertising revenues have a share of 2% within the total revenues43. This
picture informs us about the fact that mobile portals will be able to expand their
revenues as long as they can provide rich content and large variety of services.
Therefore, it is essential to establish these portals through strategic alliances.
There is also another fact that whoever wants to achieve some share from the
overall revenue will have to gain a better understanding of where the mcommerce market is now, how it may develop in the future, and what role their
companies might play in it.
4.11 Future Trends and Expectations
Future of mobile Internet has been a rather controversial subject. Some
authorities project pessimistic scenarios about the future of the emerging
market after the failure of several providers in the market. The reason behind
43
72
the manufacturers’ shortage to reach the expected revenue levels from the
Internet-accessible mobile phones is that the market has steered the demand in
a wrong way that the customers expected more from the WAP application than
it really could. The customers are currently far away from grasping the
technological backbone of WAP and therefore its capacity. The main
complaints concentrates on the point that WAP enabled devices are too slow in
accessing the information and the customers because of this reason doubt the
reliability of the real-time data44.
On the other hand, according to some analysts, more people will be accessing
the Internet from mobile phones than from office or home computers by 2003
and they believe that cellular devices will definitely perform better market
records than any other medium to access the Internet. They also highlight some
conditions related to mobile communication, which will drive this outcome.
Mobility is the first motive that is highlighted. Accessing, receiving and
sending information anytime and anywhere is an important asset for today’s
dynamic business life.
Personal composition of cellular devices is another driving force behind this
future scenario. Appearance aside, the services that will be obtained via cellular
devices will also have personal profile. There will be a personal finance
manager that integrates all the aspects of your finances, including bank records,
monthly expenses, electronic purse expenditures and so on. This is not only
stirring for the customers but also for different providers. Variety of start-ups,
telecommunication companies, banks, stockbrokers, even supermarkets with
personal finance sidelines will be eager to take part in such an application. The
winners in this new application will probably be the companies that can create
economies of scale as a result of this application. We will again indicate
collaboration in order to provide a service for the customer that will eventually
create scale economies. Alliances with financial institutions will have a crucial
impact.
44
Financial Times, 24 November 2000
73
Real-time information is also very important. However, this is one of the points
where complaints about today’s applications are concentrated. It is acceptable
to doubt about the reliability of the real-time data that has been transmitted on a
pre-WAP or WAP technology. Customers have expected from WAP
technology more than it could serve. WAP is nothing more than an extension of
GSM technology; therefore, the speed of data transfer might not be suitable for
instant delivery of real-time information. However, this picture will radically
change with the launch of GPRS, since the theoretical maximum speed for
GPRS is 171.2 kilobits (kbps) per second. This is about three times as fast as
the data transmission speeds possible over today's fixed telecommunications
networks and ten times as fast as current Circuit Switched Data services on
GSM networks45.
Going further in this context, third generation mobile communication systems
will be launched in many markets during the first quarter of 2001, which is
coming with higher data transfer speeds and broader service areas. Bluetooth is
an important technology to mention here because; it is not only coming with
higher data delivery speeds but also with potential to revolutionize the mobile
communication technology. It will enable users to connect a wide range of
computing and telecommunications devices easily and simply, without the need
to use any cables. It delivers opportunities for rapid improvised connections,
and the possibility of automatic connections between devices. It will virtually
eliminate the need to purchase additional or proprietary cables to connect
individual devices, because Bluetooth wireless technology can be used for a
variety of purposes, it will also potentially replace multiple cable connections
via a single radio link. Bluetooth technology is essential for “machine-tomachine” communications. With this technology, you can send a picture just
using a camera, to a friend’s cellular device or start the washing machine while
you are about to leave the office for home.
In the light of these facts, we believe that future for mobile Internet is still
bright, because there is a significant development in the technology being used
and mobile Internet enabled content is being expanded day by day. Therefore,
45
Mobile Lifestreams' Research (2000),
74
we should not use current technologies and the capabilities as a base for our
conclusions when evaluating this new market. Additionally, it is also very
important to see mobile Internet as a complementary technology for the
conventional Internet. We do not believe that access to Internet via cellular
devices will totally replace the PC usage or other conventional mediums to
access the Internet. Mobile Internet is convenient for several reasons that are
mentioned above, but most people will prefer to surf the Internet via their PCs
until a new technology, like fourth or probably the fifth generation mobile
communication is launched
Summary
As we have presented the different development phases together with the
general trends of the industry, we will be able to understand the possible
occasions that will shape the market in the short run. Additionally, the chapter
has addressed some crucial points that bear the opportunity to generate
revenues for different players in the industry. In the next chapter, we will
handle the problem for Turkish market by approaching the case from a
domestic view.
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5 INDUSTRY ANALYSIS
In this chapter, we will begin describing the situation of the market in terms of
its technical, political and social dynamics. When a new technology is launched
in a certain market, the maturity stages are highly dependent on these
dynamics. This part is mainly prepared to evaluate the significance of these
dynamics in Turkish market.
5.1 Macro Environment Analysis
5.1.1 Turkey46 at a glance
Turkey's strategic location between Europe and Asia, bordering the Black Sea
and the Mediterranean, and its size-with a vibrant young population of over 64
million people-mark it as an emerging dynamic economy. In 1999, per capita
GNP was US$ 2,90047.
5.1.2 The Economy
Since the early 1980s, Turkey has made great strides to liberalize and integrate
its economy with the global economy. Turkey entered a customs union with the
European Union (EU) in 1996 and is playing a pivotal role in developing
economic cooperation with the economies of Eastern Europe and Central Asia.
These policies have helped create an entrepreneurial and resilient private
sector.
Turkey had long been identified as a country that defied economic rules. It
managed to maintain a growth rate of around 4-5 percent through the 1990s
despite high inflation. With the economy growing, it was difficult to convince
46
47
This section is derived mainly from World Bank Data, www.worldbank.org
Preliminary World Bank estimates calculated using the World Bank Atlas method.
76
the politicians, or even much of the public, that Turkey needed strong
measures. Even its high inflation was tolerated. However, this challenge to
economic orthodoxy had to end eventually. 1999 was a difficult year for
Turkey. The economy was in deep recession; output declined by over 6 percent
and inflation was around 70 percent. Domestic interest rates over 100 percent
were the primary cause of the downturn. On top of this, two earthquakes in
1999 shattered thousands of people's lives and had significant economic costs.
Three events changed dramatically Turkey's economic and social agenda. First,
the coalition government's determination to carry out badly needed economic
reforms; second, the devastating earthquakes in Marmara and Duzce that
psychologically shook the entire country and ironically helped Turkey move
closer together internally, mend relations with neighbours like Greece and
move closer to Europe; and third, Turkey's candidacy to the EU that ensures the
country's commitment to push beyond its economic program to include reform
of the public administration, judicial sector, and other broader governance
issues.
Turkey's current economic program rests on three key elements: strong, upfront fiscal adjustment; major second generation structural reforms in
agriculture, pensions, banking, energy, and telecommunications; and a crawling
peg for the exchange rate to break inflationary expectations. The program
targets a drop in annual inflation to 25 percent by the end of 2000 and to under
10 percent by the end of 2002. It also aims for a growth rate of over 5 percent
per annum in 2000 and beyond. The inflation rate by the end of 2000 is likely
to be around 40 percent, which is a step back for the stabilisation program. The
ambitious growth rates are not likely to be realized at least for 2001.
Expectations are that the economy will experience a big slump because of the
catastrophic financial crisis of late November that has crushed the Turkish
banking sector and the capital markets.
Turkey's external accounts are showing worrisome trends. An import boom and
weak export response has led to widening current account deficits of up to
US$4.5 billion in the first six months of 2000. Efforts will be needed to contain
the deficit in the second half of the year. Good progress has also been made in
77
reforming the public pay-as-you-go pension system, enacting legislation to
modernize the legal and regulatory framework for bank supervision, and
introducing international arbitration for concession contracts.
Agricultural reform is beginning to gain momentum. The Ministry of
Agriculture supports the shift from price supports to direct income support. A
key test was passed in late May when the support price for wheat was
announced at no more than 35 percent above world prices, a decline of around
14 percent in dollars terms despite the 7 percent increase in the international
price of wheat.
Regarding the energy sector, the government has decided to introduce regulated
markets for electricity and gas to address the shortcomings of the current
centralized model, which has led to high cost power supplies by private
producers under government guaranteed take-or-pay contracts.
As a major emerging market with an open trade regime and large
macroeconomic imbalances, Turkey is highly vulnerable to external shocks.
Exports and imports together equal some 50 percent of GNP. About 70 percent
of Turkey's imports and 50 percent of its exports are with countries of the
Organization for Economic Cooperation and Development (OECD). As these
countries are facing an upward business cycle, Turkey will benefit from
stronger foreign demand in the near term.
At the same time, there are several countervailing factors affecting the current
account balance. First, the surge in oil prices has added up to US$2 billion to
the annual import bill. Second, the real appreciation of the Lira will boost
imports and dampen the recovery of exports. The high level and short maturity
of external debt represents another source of risk given the open capital
account. Turkey's external debt stock of US$111.2 billion stands at some 59
percent of GNP, of which about US$29.3 billion is short term.
78
Table 5.1 Key indicators and long-term trends of the Turkish economy
1979
1989
1998
1999
91.7
107.1
201.2
185.7
GDP (US$ billions)
2,261
11,780
31,221
29,326
Total exports (FOB)
5,069
15,792
45,921
40,693
Total imports (CIF)
-5.2
-13.4
-23.4
Government finance
(% of GDP)
Overall surplus/deficit
17.4
38.8
48.2
54.8
Total debt/GDP
63.0
83.7
63.5
Consumer prices
(% Change)
Average Annual
Growth
GDP
GNP per capita
Exports of goods and
services
1979-89
1989-99
1998
1999
1999-03
5.0
2.4
-
4.0
2.5
11.0
3.1
2.3
12.0
-5.1
-7.8
-7.0
5.5
4.1
5.9
Source: World Bank data, Turkey at a glance, http://www.worldbank.org/
Sustained capital inflows are critical to success of the reform program. These
funds are needed to finance the projected widening of the current account
deficit as the economy recovers and to accommodate the shift to a more
balanced mix of internal and external borrowing for the budget, compared with
the nearly exclusive reliance on domestic markets in recent years.
Turkey's admission to the list of candidate countries for EU membership on
December 10, 1999, anchors the country in Europe. It provides the government
with an additional rationale to promote economic policy reforms. The prospect
(albeit long-term) of membership and better access to EU markets is an
additional attraction for investors and has contributed to the improvement in
Turkey's risk profile in financial markets.
79
Separately, Turkey is recognized by its high rate of economic vulnerability and
large income inequalities. Absolute poverty is low, with only 2.5 percent of the
population below the international one-dollar-a-day standard line, and 7.3
percent of the population below the line defined by a local minimum food
basket. However, 36 percent of the population is economically vulnerableunable to purchase the basic needs basket, including non-food items48.
5.1.2.1 Income inequality
A World Bank study demonstrates the negative effects on vulnerability and
poverty of uneven growth, low rates of investment in employment-creating
activities, high and variable inflation, low education coverage, and poorly
targeted social assistance and agricultural subsidies. A significant share of total
inequality in Turkey is explained by differences in endowments, geography,
and opportunities in the labour market. Education and employment status
together explain almost half of the inequality, while rural/urban differences and
regional factors explain 10 percent and 11 percent respectively. As to regional
factors, it is important to note that regional differences are growing, but the
provinces at the extremes of the distribution have been by and large the same
ones over the last twenty years, as richer provinces (mainly those in the
Marmara area or around Mediterranean and Aegean port cities) are converging
towards each other, but provinces that were poor in 1975 were further behind in
1995.
While Turkey is the world's 17th most industrialized nation, it ranks 86th out of
180 countries as measured in the 1999 United Nations Development Program's
human development indicators, far behind most middle income countries
(notably, behind Argentina, Chile, Colombia, and Mexico). Some of the
contributing factors to this low ranking are the 20 percent adult illiteracy rate
and poor health outcomes. In particular, infant and adult mortality rates and life
expectancy are all worse than middle income economies in Latin America,
Asia, and Eastern Europe, which have comparable or higher levels of per capita
income.
48
World Bank Report-Turkey, January 2000
80
To summarize the above, one can conclude that Turkey is characterized by
large income inequalities and an unstable macro-economic environment. The
economic forecasts for the coming year are (1) the economy will shrink, though
the inflation rate may fall further, (2) the privatisation will gain pace and as a
consequence partial deregulation may be expected in the telecommunications
and the energy sectors, and (3) the political instability and a collapse of the
coalition government and the stabilisation program is rather likely.
5.1.3 Technological infrastructure
The developments in telecom industry have basically begun with the significant
attempts performed during early 1980s. A considerably small
telecommunication density had been increased to a level of 25% in those days,
namely 25% of the population had access to the telecommunication services.
Following this progress, the industry has been the driving force behind many
other industries in the market. Turkey succeeded in establishing the most
contemporary technology on its network, but it had been a long phase before
the ISDN 49services are brought to the market.
Turkey’s mobile communication infrastructure is technologically based on the
same standards with the developed markets and the determinant for this
judgment is the level of digital coverage on the network. Keeping several
switching units as exceptions, Turkey has almost 100% digital coverage.
However, the market still rages against a capacity shortage. The administration
of telecom infrastructure in Turkey is delegated to the state owned monopoly
via Turk Telekom. It is a critical issue for the industry to have Turk Telekom as
an enterprise that can independently make decisions. Until this year, the budget
of Turk Telecom has been determined within the margins of the national
budget. With the new Telecom regulations, Turk Telekom will be able to make
decisions free of several external impacts, which will help to overcome
problems to increase the capacity of the infrastructure.
49
ISDN service is used to connect telephones, computers, and fax machines. The technology
provides fast connections for voice, data, fax, and even video all through a single line. (Source:
http://www.isdnzone.com)
81
5.1.4 Demographic structure
According to the most recent figures, the total population of the country is over
65 million and the annual growth rate for the population is around 1.5%.
Nearly, 75% of the population live in the cities and 56% have a secondary
school level education. The point to be highlighted about the general profile of
the population is that the age segment of 16-35 accounts for 60% of the
population, which has an important impact on the consumption habits in the
market.
The reflected GNP per capita for Turkey is $ 2,900, however considering the
non-registered economic activities; this rate is thought to be at a higher level.
Beside the nation’s high rate of economic vulnerability, the large income
inequality is an important issue, which warns us about the existence of a market
segment living on GNP per capita levels that are comparable to the developed
market levels. It is also important to realize that Turkey is a country undergoing
radical changes, and has been for the last century. Urbanization and migration
from the east to the more developed west are changing the character of the
towns and the rural areas and bringing a mass of social problems with them.
Regional figures for the country differ extensively from each other and the
difference is growing, but the provinces at the extremes of the distribution have
been the same ones over the last twenty years. As richer provinces (mainly
those in the Marmara area or around Mediterranean and Aegean port cities) are
converging towards each other, but provinces that were poor in 1975 were
further behind in 1995.
99% of Turks are Muslim. Turkey is however, a militantly secular country and
life is far removed from that under fundamentalist regimes. This is a key factor
to achieve any understanding of the way that politics and society work in the
country. At times, you will forget that you are in an Islamic country and only
be reminded next time you hear the call to prayer, broadcasted through a PA
system from the nearest mosque. The mix of cultural influences and traditions
in Turkey is a rather unique situation when it is compared to the homogeneous
structure of the West European societies.
82
5.1.5 Government
Government is probably the most important player in the development of
mobile communication technologies. It has the essential role in the economy to
develop and implement the emerging technologies.
Table 5.2 Basic institutional facts about Turkey
• Official name
Republic of Turkey
• Form of state
Parliamentary republic
• National legislature
Unicameral Meclis (parliament) of 550 members directly elected for a five-year term
• Legal system
Based on European models and constitution of 1982
• Electoral system
Universal direct suffrage over age 18. Only parties gaining more than 10 per cent of the national vote
are eligible for seats in the parliament
• National elections
April 18 1999; next election due by April 2004
• Head of state
President, elected by an absolute majority of the Meclis for a seven-year term. Current president:
Ahmet Necdet Sezer, elected in May 2000
• National government
On June 9 1999 parliament voted in a coalition government led by Bulent Ecevit, comprising the
Democratic Left Party, Nationalist Action Party and Motherland Party
• Prime minister
Bulent Ecevit (DSP)
Source: Own
In general, governments have been driving forces behind the technological
developments in the developed markets. However, the situation of the
government in the Turkish market is rather complex. In contrast to the
developed markets, the government in Turkey is rather slow in coping with the
latest technologies and generally follows the private enterprises in the new
technological developments.
83
State monopoly in the telecommunications industry is the essential barrier to
the market development. The clumsy bureaucratic structure of the government
institutions disables the possibility for quick decision making and
implementation processes. State monopoly hinders the formation of a
competitive market, which will be in favour of the many players in the
industry. However, as the liberalization following the privatisation of Turk
Telekom came into question, the attitude of the legal authorities has also
changed. Legislation is being modified in order to bring the technology into
daily transactions, which will ease the burden of the official authorities.
However, this process is rather slow to catch up with the requirements
emerging as a result of the technological development. At present, official
entities do not reveal any attempt to cope with the developments in the mobile
Internet. In fact, some basic transactions have recently been made, as Devlet
Malzeme Ofisi (Equipment Office for State Enterprises) has established a
website for online procurement several months ago. However, we might still
wait for a while for the development of mobile Internet applications in the
official transactions.
5.1.5.1 The Significance of Turk Telekom
Turk Telecom is the dominant telecommunications carrier for the fixed lines in
Turkey. It provides a variety of telecommunications services from basic voice
telephony to several other value-added services, like analogue mobile
telephony, CATV, Internet, satellite services, data, paging, etc. With
approximately 17 million access lines in service (corresponding to 27% fixed
line penetration and 83% digitalisation), it is ranked as the 11th largest operator
in the world50.
More than a decade of heavy investment has modernized and expanded Turk
Telekom’s infrastructure. Digitalisation stands at 82% of exchanges and 95%
of transmission, which compares favourably with the levels in some
economically more developed countries. Being in the privatisation phase, it
50
The Official Website of Turk Telekom A.S., http://www.telekom.gov.tr/
84
stands as an attractive investment opportunity with high growth potential due to
several reasons.
ISPs must agree to use the Internet circuit provided by TT. Turnet or TTNet
operates TT’s Internet backbones. Turnet has 16Mbps of international capacity
and 2Mbps of domestic capacity, which are operated from connection points in
Istanbul, Ankara and Izmir.
However, being fully controlled by the state disables the enterprise to shorten
the decision-making processes and harms the market structure. Deregulation of
Turk Telekom in 2003, will attract new entrants to the market and they should
bring with them newer applications and business models, paving the way for
expansion of content and commerce on the mobile Internet and Internet
platform.
5.2 The Industry Environment
5.2.1 General
In this part of the chapter, we will describe the industry environment of Turkish
telecom market, which will be a base for our further study of the trends, drivers
and barriers, key players in the development of MI in Turkey. Completing this
part, the reader will get the necessary understanding for the market and will be
able to compare the domestic market’s pros and cons against the European
markets.
The competition in the terminal market is getting tougher as more vendors try
to get a share from the market. As the market has come a long way since its
early days, the gaps between the shares of each vendor have considerably
diminished. Looking at the network equipment providers, we still can see that
the market is dominated by several players, which are led by Ericsson. The
legal framework and technical infrastructure should be improved before the
market constructs a competitive environment similar to the terminal market.
85
We expect similar competition on the operator side of the market in the shortrun, particularly after the liberalization of telecom monopoly. Only two
operators have shared Turkish mobile telecommunication market since 1994.
Because of a weak competitive environment, both operators did not need to
differentiate themselves either in services or in the prices offered. However, the
situation will definitely change in the favour of a developing market
environment after Is-Tim consortium, the third mobile operator, launches its
operations. It is expected that the new operator will not only differentiate itself
with challenging prices but also with the quality of the service that will be
provided. The competitive edge behind the new operator is that their switching
unit and network will be supported by the latest technology, which will enable
them to lower the operating costs. Doing this, Is-Tim is going to offer a better
service with lower tariffs. This will also affect the market strategy of the fourth
operator as well as the existing ones. The second GSM 1800 license is given to
Turk Telekom as the fourth mobile operator and Turk Telekom will delegate
the operation to another corporate body, which is expected to be established by
the people from Turk Telekom or people who have close relations with the
carrier. In this sense, the fourth operator will also come with its own
competitive advantages. Being in such close contact with Turk Telekom, the
operator will have control on both fixed line and the mobile network, which is a
good opportunity to create a synergy in the services that will be provided for
the corporate and individual customers.
As the two new operators enter the market, Turkcell and Telsim will need to
revise their current strategies and come out with new offerings that will
increase the value for customer. Creating value for the customer will be
essential because, after a certain point, price will not be a key factor to gain
market share. When the prices are lowered to the possible minimum levels, and
then subscriber loyalty will come into question where the services will be
optimised for the consumer satisfaction.
86
5.2.2 Trends
It is believed that the development of Mobile Internet in Turkish market will be
much faster than we have witnessed in the wireline Internet. Mobile Internet
will address larger masses of users in this market.
There are several reasons behind this estimation. First, mobile telephone
penetration rate is much higher than the penetration rate of the PCs or other
conventional mediums for the Internet access. In addition to this, PC usage
could be seriously problematic for the elder people and the people without any
sufficient educational background, but mobile phones are very different
compared to PCs. They are highly practical and convenient to use. Another
reason that was illustrated by many interviewees is that Turkish people tend to
spend their time outdoors rather than indoors, in front of their PCs. The climate
of the country is the reason behind this attitude, where people can find the
sunshine several times a week regardless of the season. This habit promote the
use of the mobile handsets more than the use of the PCs.
Looking at different actors in the Turkish telecom market, we see Ericsson and
Motorola as two important vendors that have started to establish the
infrastructure necessary for mobile Internet. Siemens could also contribute
through the newly emerging mobile operators in the market, but majority of the
terminal providers still prefer to market their devices. On the operator side,
Turkcell and Telsim are going alongside in updating their networks to GPRS
and preparing for the 3G technologies. ISPs and content providers managed to
cope with the WAP technology, but content variety still needs be extended. The
market seems to recognize the potential of this new technology. Therefore, we
believe that intensity of Turkish content, which is one of the current barriers
against MI development, will be expanded and varied by the content providers.
5.2.3 Substitute technologies for mobile Internet
While the potential of mobile Internet is huge, simply in terms of its offerings
and the potential user base, the importance of substitute technologies should
not be underestimated. Real, well-established alternatives exist for just about
87
all the applications we can predict for mobile Internet and for the moment,
interest in mobile e-commerce does not necessarily equate to revenues or
revenue-generating opportunities. There is still a possibility for the market to
be similar to the ISP market, where each player is eager to stand there but not
any of them revealing real profits.
We have already seen examples of how the mobile Internet is being
successfully implemented. In February 1999, the Japanese mobile operator,
DoCoMo, introduced I-mode. By October 2000, I-mode boasted 14 million
subscribers, and the service continues to grow at an astonishing rate of around
1 million new subscribers per month. I-mode is expected to have around 20
million subscribers by the end of the year.
Today, I-mode supports some 230 applications and services, such as banking,
ticket-reservation, travel-reservation services and a variety of entertainment
services. Simplicity, supporting a subset of HTTP (the hypertext transfer
protocol), economical fees and successful strategy in determining the target
market, which has given an additional emphasis for the travelling business man
and the Internet youth are the major key factors behind the sensation of this
new technology51.
The Mobitex network in Nordic Europe and North America follows I-mode as
another example of successful implementation of the mobile Internet. In fact,
the roots of this technology are grounded further before I-mode. The Mobitex
network was originally developed in Sweden by Swedish Telecom Radio and
put into trial operation in 1983. The development process of this technology is
rather similar to the Internet. The technology has initially served as a network
to be used within a specific field service, such as a company or a production
plant. However, as the focus of the network shifted to messaging and two-way
paging, the market began to expand. Palm Computing, Inc., a subsidiary of the
3Com Corporation, played a key role when it introduced the Palm VII. The
Palm VII is a Palm computer with a Mobitex radio that supports Web clipping,
a simple but effective way of utilizing the narrowband mobile Internet.
51
NTT DoCoMo Official Website - http://www.nttdocomo.com/top.shtml
88
The new success of Mobitex can be attributed to more mature products but also
to a maturing market that understands and is ready to use the technology52.
From these two examples, we see that it is possible to create a substantial
market using simple technology and low bandwidth. We also see that success
comes from being user-oriented and taking a new marketing approach.
Some authorities also discuss the possibility of placing mobile communication
devices into portable computers, which is expected to provide a better user
interface. However, it is obvious that this method is currently out of practice,
since portable computers with telecom, devices will be more costly than an
Internet accessible cellular device. Apart from that, there are many different
phone standards in the market. There is no standard that is universally
accepted.
5.2.4 Complementary technologies for mobile Internet
5.2.4.1 Internet in Turkey
Considering the figures related to the conventional Internet penetration, the
situation is not bright compared to the European markets. However, there has
been a remarkable progress in the last few years where Turkey’s Internet
penetration rate has tripled since 1997. The number of Internet users in Turkey
is currently 1.2 million53 and is expected to be over ten million by the year
2004, generating over $ 4.5bn in revenues. However, 3% Internet penetration
rate is still unsatisfactory compared to the average 21% in the Western
Europe54.
Turkish people believe that the Internet is a medium that eases up many
transactions in the daily life. However, they also believe that with the
expansion of the Internet usage, forgery will also rise. In addition, 70% of the
population believe that education via Internet will increase.55
52
Ericsson Mobile Data Magazine, 2000, Issue No: 1
Melih Özdemir – Super Online, 09 November 2000
54
55
Finansal Forum newspaper, 1 October 2000
53
89
It is important to mention the drivers and barriers for the Internet development.
This comparison will enable us to see whether there is a chance for the
conventional Internet to develop in the market.
#"
Main Drivers behind the Internet Development
#"
Growing PC penetration rate
As we have already mentioned, though the statistical figures are not
competitive with the European market, the trends in recent years warn us
about the existence of a promising market. In our opinion, this is not an
irrationally optimistic approach since the figures reveal that there had
been 200,000 PCs dispatched, while in 1999 this amount has reached to
levels that exceeded 650,000.
#"
A huge prospective customer base
GNP per capita is estimated to be $ 2,900, which is low, but Turkey’s
grey economy means the real figure may be twice this. Hence, GDP per
capita may not be the constraint on Internet usage. Unequal wealth
distribution is also a factor that should support strong growth in Internet
usage in the initial years. It is estimated that the top 20% of the
population receive on average 55% of total Turkish income.
#"
Ease of access
All Turkey’s leading ISPs use a digital backbone, and are investing in
more dial-up lines, ports, and points of presence. They have similar
modem per subscriber ratios and access speeds. They also all have a
customer support line, most of which serve 24 hours a day and 7 days a
week. However, it is a necessity to modify the current infrastructure and
the switching units to efficiently serve for the fast Internet connection.
Considering the contemporary infrastructure of the country, this is not
believed to be a complicated transaction. It will be possible with the help
of some additional hardware and upgrading the software. This will also
increase the market value of Turk Telekom. Turk Telekom is currently
using TTNet for the Internet connection, but this cannot respond to the
required levels of Internet connection in the near future.
90
#"
Entertainment
Looking at the consumer profile of the Turkish market, we notice that the
majority is concentrated in the age group of between 16 and 35.
Applications on the Internet that contain entertainment facilities are
potential killer applications. Services such as online games, chat rooms
and e-mail / messaging are upheld by this segment of the market.
Applications that are related to investment and data gathering will follow
the entertainment. The main motive behind the Internet usage in Turkey
is not the professional tasks. People are more into applications that have
relaxation effects. When it comes to the most common products and
services that are offered on the Internet, we can at the first phase mention
audiocassettes, CDs, computer peripherals, travelling tickets, gifts, hotel
reservations, toys, sports equipments and cosmetics products. Besides,
the most visited websites in Turkey are the ones that are related to
chatting. In particular, these websites are haunted by the youth within the
age group of 15-24. Consumers over the age of 25 are more interested in
the websites that are related to their profession. Online shops attract
women rather than the men56.
#"
Barriers to the development of the Internet
#"
Content
An insufficient level of Turkish content is the major problem that might
hinder the Internet usage growth. The majority of the users are not
capable enough to understand the English content. Access has been the
basic concern during the initial stages after Internet had been launched in
Turkey. Consumers were not willing to pay for the ISP packages, which
were offered from prices around $ 30. Today most of the ISPs are
providing their services at much lower prices. Nevertheless, this new
pricing system by itself could not be an initiator for the market growth.
People are still reluctant to get connected to a cyber platform where the
56
Finansal Forum, 1 November 2000
91
majority of the information is in English and the number of websites
providing Turkish content is considerably poor.
#"
The cost of the technology
The price for a mainstream PC begins from $1,000, which is still rather
costly for the average consumer. Although there have been campaigns
with stimulating opportunities, PC retains its position as being a luxury
good.
5.2.4.2 Mobile communication market in Turkey
The development of the mobile communication in Turkey began in 1994, with
the launch of the first two mobile operators of the country, Turkcell and
Telsim. The growth pace of the market has decreased since 1998 when the two
operators had achieved their commercial autonomy. However, the general
opinion is in a way that Is Bankasi- Telecom Italia (Is-Tim) consortium, which
won the GSM 1800 auction in April this year will revive the market. In
addition to this, there will be a fourth operator to be launched in the following
months, which is expected to promote Turkish market to the 9th rank among the
whole telecommunication markets in the world.
With regard to both the number of subscribers and the mobile phone
penetration rates, Turkey has an advantageous position compared to the other
developing markets. Access to wireless Internet is more common than it is in
US. It is expected that Turkey will have an important position in the world
markets following the developments coming with the third generation mobile
communication technologies57.
According to research conducted by The Strategis Group, Turkey has been
portrayed among the ten largest telecom markets in 2007. According to this
projection, Turkey will hold 17% of the world telecom market together with
United Kingdom, France, Brazil and South Korea in 2007. It is also estimated
57
Strategis Group (2000)
92
in the same research that the mobile phone penetration rate will reach 62% in
2007, where it was 17% in 1999.
Considering the quality of the telecommunication infrastructure, Turkey is
rather competitive with the European standards. However, the dominance of the
state monopoly creates barriers in the decision making process and obstructs
the services from being launched on time and diminishes the value for Turk
Telekom, the state owned carrier. Because of this problematic situation,
Turkish mobile telecommunication market faces a capacity problem.
The control of the infrastructure has been delegated to Turk Telecom as a state
monopoly. Until this year, all the investment decisions of the entity have been
considered within the framework of the general budget of the Turkish
Republic. However, with the new telecom law, Turk Telekom will be able to
make its own decisions, which will help to ease the capacity problems.
The general belief is that the privatisation of Turk Telecom will not solve the
major problems unless it is handled together with liberalization. Same
conditions that apply to the domestic investors should be provided for the
foreign investors as well. There are certain groups in the managerial levels of
the state monopoly who benefit from the current situation of the company. The
pace of the development will be much improved after Turk Telekom is
reorganized and the market gains a completly liberal structure.
GSM and ISP markets are partially liberalized, because GSM should obtain the
services from Turk Telekom. The general belief is that the services will be
totally liberalized this year or the following year, since the Telecom Head
Council has such a target to fulfil. All these developments are important drivers
for the mobile telecommunication market.
With the liberalization of telecom services, we will witness a remarkable level
of demand and dynamism. First, there is a large consumer base enforcing the
attractiveness of the market. Secondly, the legal regulations are becoming less
supportive for the monopolistic market environment and as a third factor we
can address the quality and capacity of the supply structure. Turkey is
93
prominently in a lucky situation in terms of technological infrastructure of the
telecommunication network. The market has absolutely the most developed
infrastructure in its region. Active network operators and the educated labour
supply are important assets for the development of the industry.
#"
Drivers of Mobile Communications Growth
#"
Promotional activities
The increase in the number of subscribers has also stemmed from the
successful promotional campaigns performed by a variety of
corporations operating in the media sector and this will always play an
important role by being an effective driver for creating demand. One can
claim that the main reason behind the increase in the subscriber numbers,
during the last year, is the promotional campaigns of various
newspapers. The market has broken a record by generating 1,300,000
subscribers just during July. The recent picture from the market reveals
that these kinds of promotional campaigns has been matured and
immediately new campaigns emerge in a different set-up, like lotteries
performed by the manufacturers of a range of durable consumer goods.
#"
Decrease in the device prices
The prices of the wireless telecommunication equipments have gone
down one third as the technology develops. This has had a significant
impact on the increase in the number of mobile telephone users. The
average price for the new model cellular phones had been $ 3,000 in
1994, where $ 1,000 is the maximum price for the new models that are
being launched nowadays and the new models are being sold for half the
prices several months after they have been launched. For instance,
Ericsson R320s had been offered with a price of 400 million TL (app. $
550) when it was launched last year, but the price went down to $ 300 as
a result of an increase in production levels. There is also another factor
behind this decrease in the prices. Network operators, Telsim in
particular, together with the distributors subsidize the import of the
devices and help to launch the product with lower prices than it is
94
supposed to be according to the other markets. Currently, 80% of the
market consists of entry-level products (low end), which have price of
around 100-150 DM (less than $ 100)58.
#"
SMS (Short Messaging Services)
SMS is favoured especially among the youth. The reason behind the
preference of data usage instead of voice feature of the cellular devices is
that SMS has a privacy attribute at first hand, secondly the service bears
relatively low costs compared to the voice services. Therefore, it is used
by the younger customers with lower income figures, which occupy a
considerable share in the consumer market.
#"
Barriers to Mobile Communications Growth
#"
State monopoly
Bureaucratic transactions within Turk Telekom can be defined as the
main barrier for the development. Long and slowly progressing decisionmaking procedures prevents the investments from being launched or
completed on time. When it comes to the telecommunication industry,
the cost of this clumsy organizational structure outstandingly increases,
where the technology develops rapidly. The privatisation and
liberalization of Turk Telekom is a quite controversial issue in Turkey.
Different from other state owned companies in various markets, Turk
Telekom has a strategic position. Some authorities associate the situation
of the enterprise directly to the national security, since the control of the
information flow within a country is a rather decisive issue. The
delegation of this authority to the private actors or even to the foreign
enterprises is largely criticized. The most significant reaction is coming
from the military bodies. No army member has made a declaration
concerning this issue, however the attitude of the military on the
privatisation of the state owned carrier is obvious and considering the
58
Interview – Ali Kesan, October 2000
95
impact of the military on the governmental issues, we can say that the
delay in the privatisation program largely stems from this impact.
Secondly, there are also certain interest groups within Turk Telekom and
inside the government that do not support the privatisation program,
which will unquestionably be against their benefits. These interest
groups have also serious lobbying activities within the government.
Therefore, the question of the amount of shares in Turk Telekom that
will be sold to private investors has become a chaotic situation.
Developed markets of tomorrow’s world are in a process of establishing their
infrastructures on information technologies, communication, text, picture,
voice, video processing and knowledge transfer. It is very important to
determine the future technologies that will be used in a most accurate way.
Countries that could go beyond the industrialization process will be able to
dominate the world markets in the near future. In the future, the societies will
establish their infrastructure on the technologies, which are referred to as
information technologies.
Mobile communication together with the data processing industry will shape a
new type of living and control the whole world markets as a result of a massive
infrastructure. In the case that Turkey gives priority to these information
technologies and restructures the economy accordingly, it has a chance to catch
up with the developed markets. Otherwise the country will not be able to cope
with the challenges of the globalisation process and its competitiveness, already
hampered by adverse currency effects will be further worsened. Thus, Turkey
should base its economy on these promising, high value added and high-growth
industries.
Turkey has shown slow progress in the Internet field. However, GSM users in
the market, which were 4 million in 1994 increased to 6 million in 1999 and
reached 11 million in the beginning of the last quarter of 200059. On the other
hand, although the penetration rate for the PCs is increasing, it is still low
compared to the mobile phone penetration. The estimations for the year 2001
59
“Iletisim Teknolojisinin Önemi” – Finansal Forum, 1 November 2000
96
are that the mobile phone penetration rate will reach 26% where the rate for the
PCs is just 5.4%. These figures are important to have an optimistic idea about
the future of mobile Internet in Turkish mobile communication market.
In fact, currently there is not a serious technological gap between the Turkish
mobile Internet market and the developed markets, since the technology is
newly emerged and there is not any specific road map for the development
process. Namely, Turkey again got a chance to catch up the developed markets.
In the following parts of our study we will discuss about the structure of the
market, how this new technology could be adapted to the Turkish market and
how an equipment vendor can, that is to say Ericsson Turkey as being our
thesis partner, achieve the greatest share in the market during diffusion process.
In order to determine the major actors that will shape the mobile Internet
development pattern in Turkey, we found it important to cover the enterprises
and start-ups from not only the telecommunication industry but also the
companies that are functioning in related fields, namely the Internet sector.
We find three important bodies in the mobile Internet market: equipment
vendors, network operators and the content providers or ISPs. The market will
be shaped within this framework. The network operators will provide WAP,
GPRS, or 3G technologies, these technologies will be supplied and be handed
out to the end consumers through the terminals by the equipment vendors and
the Internet content that could be accessed via mobile phones will be provided
by the content providers and/or ISPs. Besides these actors, we will also discuss
other bodies that will take role directly or indirectly in this process.
#"
Deregulation and Privatisation
The conditions of the tender for the privatisation of the state owned fixed
line monopoly, Turk Telekom, were announced by the Turkish
government on 14th of December. The offers will be accepted until the
14th of May60.
60
Hurriyet, 15 december 2000, http://www.hurriyet.com.tr
97
Initially, 33.5% of the company is to be sold to a strategic partner with
the necessary technical ability and sound capital base. The initiative for
administration will belong to the strategic partner. The government plans
to conclude the privatisation in 2001 in accordance with its commitments
in the stand-by agreement with IMF.
At this point, it is important to note that there is a strong resistance from
various parts of the institutional network, whether be it the political
parties, media, etc., towards the privatisation of Turk Telekom and
deregulation in the market.
There are certain factors that may get in the way of the privatisation
process, such as uncertainty in Turkish politics, which may result in
dissolving of the current coalition government, the unwillingness of the
global financial institutions to credit telecommunication companies with
their investments in the face of overcrowding and uncertainty in the
industry. In the light of these, we expect the privatisation of Turk
Telekom in mid 2002.
The following figures reflect the inefficiency clumsiness of the state
monopoly and thus how vital the privatisation is for the sake of the
industry. Spanish telecom companies generate 7 times bigger revenues
with 2 times larger capacity while Italian telecom companies generate 9
times bigger revenues with 1.5 times larger capacity compared to
Turkish telecom company.
Figure 5.1 Revenue per Subscriber of fixed line telephony companies in USD
Revenue per Subscriber ($)
1000
800
600
400
200
0
Turkey
European average
Source: Hurriyet, December 15, 2000
98
5.2.4 Competition assessment
In this section, we evaluate competitor strategies and try to draw a picture of
the competition in the Turkish market. Ericsson’s strategies, weaknesses and
strengths are dealt with in a separate chapter in the following parts of this
study. Thus, very little actually is mentioned here about our case company
5.2.4.1 Competitors’ strategies
Considering the network equipment market, Ericsson has an apparent
leadership being the sole supplier of Turkcell, market’s leading mobile
operator. As a result of this situation, we can say that around 70% of the total
handsets used in the market utilize the network, which had been equipped by
Ericsson. In addition to its contributions to the mobile communication market,
Ericsson has also invested heavily in other sectors within the industry, like
establishing the largest phone-banking infrastructure and setting up the
broadest cable TV and Internet networks. These have been important references
for the company’s market leader position in the mobile network branch.
Nokia, on the other hand has still not performed any significant attempt to get
share from the network market. The company’s operations in the network
market are limited. Considering the pre-WAP and WAP technology, the only
remarkable market operation of the vendor is providing WAP gateways and
there is not any definite investment in GPRS or third generation technologies.
The current picture tells us about the fact that Nokia will again prefer to grow
in the terminal market during the development process of mobile Internet. On
the other hand, Nokia’s market value in terminals market has significantly
increased during the recent years, where the vendor’s market share has
increased to 35% leaving Ericsson behind with a market share of 30%. As we
have earlier highlighted, the major reason behind this success is Nokia’s
comparative success in product design.
Panasonic has a unique performance in the terminal market, which is rather
stable. The vendor has been holding a 12% market share during the recent
years. In fact, Panasonic is supposed to present a better performance in WAP
99
enabled devices considering that the company has the opportunity to utilize its
former experiences in Japan, where the company has been the leading
equipment and device supplier for I-mode. Panasonic does not provide any
corporate solutions and network equipment for the operators. The company is
sells its mobile devices through its domestic distributors. We believe that 12%
market share is a considerable success for Panasonic, where the company has
no significant marketing campaigns or effective relations with the key players
of the market. However, the vendor is still slow to cope with the market.
Panasonic has just launched its first WAP enabled model in the market, where
the competitors have already presented their GPRS ready devices.
Motorola has launched its services and products in the market through Telsim,
market’s second largest mobile operator. Motorola provides the equipment and
infrastructure for GPRS and 3G technologies for Telsim network. Similar to
Ericsson’s services provided for Turkcell, Motorola also offers consultancy
services in network design, network applications and integrations, network
support and development, and network management. In the terminals market,
Motorola is trying to differentiate its products with considerably low prices.
Collaboration with Telsim is the main push behind this strategy, where
Motorola devices are financially supported by Telsim during the import process
before they are ready to be launched in the domestic market. With the help of
this low price strategy, the company is able to increase its market share to 10%
from 8% of the previous years. However, we find Motorola’s market strategy
to bear a significant risk, where the company prefers to grow through Telsim
channel, which is not favoured by a majority of the subscribers in the market
and as the competition in operators’ market hardens, the situation of Telsim
will be relatively questionable. As far as the market has proved, the players in
the telecom market cannot achieve any significant success through pricecuttings in their services and products. The end customers and the operators
have more expectations from the providers than merely the advantageous price
offerings. In the light of these facts, we do not appraise Motorola as a serious
threat for Ericsson for the coming competition in new telecom technologies
unless Motorola changes their market strategy.
100
Alcatel Teletas has always been an important player in the fixed network
solutions, but the company fails to present the same performance in mobile
networks. Alcatel Teletas has an important advantage for their relations with
the government and Turk Telekom, since the company was originally founded
as the Research Laboratory of Turkish Telekom in 1965 and the government
held its share in the company until early 1988. This blurred relationship had an
important impact on government and Turk Telekom decisions for the
significant state projects. However, today Alcatel Teletas can hardly respond to
the needs of the mobile communication market. Therefore, we should also
evaluate the position of the company in the devices market. Alcatel’s strategy
in terminal market is similar to Motorola. Alcatel also offers GSM products,
but the recent products, which are WAP enabled, have inconceivable price
advantages that can go down to $ 60-70 levels. However, insufficient
distribution network and after sales support hinders Alcatel from getting
considerable shares from the market.
Siemens, on the other hand, is an important player in mobile business in US
and several developed markets in Europe, with Siemens Information and
Communication Networks (SICN). The company has launched HiPath for the
mobile office applications, using both multimedia and Internet together. The
company has already reached 1 million customers. However, Siemens did not
launch SICN operations in Turkey and continued to sustain its position in
energy and computer industries. However, Siemens is still one of the most
important competitors of Ericsson in network business and the company is also
one of the leading equipment suppliers of Is-Tim, the third mobile operator to
be launched. Siemens has an important competitive advantage over Ericsson.
The company has closer connections with the government institutions than
Ericsson has, but there is also a disadvantage for Siemens that it has a less
flexible organizational structure than Ericsson, which hinders the fast decisionmaking and implementation processes.
101
5.2.5 Customers
Turkey with a population of over 65 million naturally constitutes a large
consumer base. Looking at the profile of this consumer base, we encounter that
it is largely composed of young people with ages ranging between 16-35. In
addition, the specific picture of this consumer group is their being largely
dominated by pioneer and materialistic consumer types. We will discuss the
main types of consumers later in this section. However, for the moment, we
should say that these types of consumers are considerably different from the
mainstream consumers in Western Europe. Without considering their earnings,
young pioneers and materialists can dare to shoulder burdens that might exceed
their budgets. The only driver behind this attitude is the market value of the
product as well as the opportunities that the product offers.
The launch of the prepaid subscriptions has been a turning point for the Turkish
mobile communication market. Although it has only been two years since the
day it was launched, the number of mobile phone users with the prepaid
subscription has reached to 37% of the total 11 million mobile phone
subscribers in the market. Prepaid subscription neutralizes the fixed and
variable costs for the subscribers. Annual fixed charges and 6.5 million TL
(app. $10) paid to Telsiz Genel Mudurlugu (Wireless Telecommunication
Equipments HQ), were the main factors causing dilemma in the decision of
consumers for the mobile subscription. Prepaid subscription emerged as a
solution, being retained from all the fixed costs for subscription. An interesting
point about prepaid subscribers is that they use the SMS services more than the
regular subscribers do, according to the declarations by Turkcell and Telsim.
Looking at individual customer profiles in wireless communication and Internet
market, we can classify five different types of consumer models, these are:
a) Pioneers: They are eager to obtain the latest technologies as they are newly
launched. They do not hesitate to pay large amounts of money without
questioning its function and utility. They might even not exactly know what it
102
is for, or how it operates. They are the target consumer groups in many
markets.
b) Achievers: In contrast to the pioneers, the consumers in this segment
examine and know the product very well and they utilize at an uppermost
extent after the purchase. This is also an interesting target group, however
marketing a new technology gets a little harder when it comes to achievers.
c) Materialists: This segment has been the essential target group for many
vendors. Consumers in this group are not actually interested in the technical
specifications or functions of the product, but they are more into the aesthetical
specifications of the product, because they usually purchase a product to
associate themselves with the image of the product or brand. In this sense, it is
extremely important for a product to be trendy for these users.
d) Sociables: Consumers in this segment are relatively less preferred by the
vendors. Since they are basically interested in the core function of the product
and ignore many specifications of the product including the brand.
e) Traditionals: They are the latest followers of the emerging technologies
and they are not a target segment for the vendors. The demand coming from
this segment usually stems from the reason that the usage of the product has
been rather common in the market.
The characteristic of the Turkish mobile communication market is that it is
dominated by the pioneers and materialists. As we have formerly mentioned
the largest consumer group in Turkey is the youth in 16-35 age intervals, which
have a remarkable tendency for consumption. The core functions of the product
have secondary level of importance in the purchasing decision process. The
value associated with the product and brand, word of mouth are primary factors
that affect the consumer choice. In most cases price, together with functionality
comes as later stage criteria.
Corporate consumers are not much different from the individual consumers.
Vendors play important roles in shaping the clients’ demands. It is too early to
mention the client attitudes for the mobile Internet, but taking the Internet
market as a reference we can say that the major strategies of the clients to
develop their businesses are to take a European or American application and try
to adapt these applications for the Turkish market. Currently, the clients do not
103
know exactly what they can get out of these new technologies. Therefore, they
cannot clarify a strategy and road map that will help them utilize the
technology in an optimal way.
We have so far presented the major balances that will affect mobile Internet
development. In the following section, we will try to discover the essential
needs of the market, not only for developing a specific technology, but also for
being a successful player in the market.
5.3 Turkey’s Major Players in the Mobile Internet Market
One of the motives for the foreign investors to consider the Turkish market is
the contemporary structure of the supply market. First, there are already two
mobile operators in the market that have been in business for 6 years. The
infrastructure is technologically sufficient, but needs to be expanded. Secondly,
and more importantly, there is an important potential of educated technical and
managerial work force. Funding seems to be the basic problem in the
investment process, which we will study in more detail in the drivers and
barriers for the mobile Internet. However, considering that the foreign investors
will also bring their own financial resources, this is not an important issue to be
raised as a handicap of the supply market for the mobile communication.
5.3.1 Network operators
We had briefly mentioned the structure of the network operators market in
Turkey. In this section, we will focus on these operators from the point of their
investments and progress they have made so far for the mobile Internet market.
We will also mention the third mobile operator, Is-Tim although they have not
launched their operations yet. However, we believe that Is-Tim will be an
extremely important player since they are coming with new technology, new
managerial approaches and with strong financial backbone.
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5.3.1.1 Turkcell
Turkcell is the leading network operator for the mobile communications in
Turkey and at the same time, it is one of the largest and fastest growing mobile
communications operators in Europe in terms of number of customers and
revenues.
Turkcell began its operations in 1994. The main shareholders of the company
are Cukurova Holding, Sonera and Fintur. With approximately 8.7 million
customers using Turkcell’s mobile communications network as of 7 October
2000, the operator has approximately 65% of the total Turkish mobile
market61.
Turkcell has invested more than $ 2.5 billion in the Turkish market as well as
the other markets in the region since the day it was launched. The company has
developed the premier mobile brand in Turkey by differentiating themselves on
quality of service. The operator provides a coverage area of approximately
99.5% of the population living in cities. After the latest developments
experienced in the Turkish mobile communication market, it is difficult to
depict the general profile of the company’s customer base. There has been a
great increase in the subscription rates and because of this situation; people
from different segments of the market have been Turkcell subscribers.
The close relationship of Turkcell with Ericsson Turkey is important, because
Nokia has emerged as a serious threat for Ericsson since the Finnish operator
Sonera got 13.3% share in Turkcell and it is known that Sonera is giving
priority to Nokia as a supplier of its operations in Finland. However, this has
not changed the relations between Turkcell and Ericsson. Turkcell is still a key
account for Ericsson with $ 1.2 billion contract and is one of the largest clients
of the company.
Turkcell estimates that 3G technologies may top in 2003. Currently, the
company is trying to expand the GPRS technologies in the major cities until the
61
Turkcell Official Website, www.turkcell.com.tr
105
end of the year. During this year and last year, Turkcell had some services that
can be considered as a transaction step for the mobile Internet. These services
are mainly WAP based, but there are also certain services that have been
provided for the subscribers free of charge using the SMS services. “Cell
Broadcasting” is a successful application to get the Turkish consumers used to
exploiting mobile data. Generally speaking, Turkish consumers are much
interested in voice function rather than the data. Therefore, we found cell
broadcasting an important starting point.
We think that Turkcell has a very important competitive edge in mobile
Internet development and by using this competitive advantage; it can easily
achieve the largest share of the market. There is a 25% share of Turkcell in
Super Online, the leading ISP of the market. We believe that the companies in
this industry will be able to get the most out of the market by collaborating with
the other mentioned actors in the industry. Turkcell has already had close
relations with Ericsson as an equipment vendor and it can also reinforce this
collaboration by cooperating with Super Online as a WAP content provider.
Doing this, not only Turkcell but also Ericsson and Super Online will get more
satisfactory results in the market.
For GPRS and 3G technologies, we do not find Telsim a serious threat for
Turkcell. However, Is- Tim is getting prepared rather mutely, but the general
opinion about the new operator is that they are coming with crucial edges that
may lead Turkcell and others to rethink their strategies.
5.3.1.2 Telsim
Telsim has provided GSM 900 services in the Turkish mobile communication
market since 1994. The company is 99% owned by domestic capital. Telsim
has invested $ 2 billion in the Turkish market. $ 400 million of this investment
had occurred before 1998 when the company got the license as a mobile
operator. It is estimated by the company that the total investments will reach $
2.5 billion until the end of 2000.
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The number of subscribers of the operator has also increased rapidly as a result
of aggressive sales and marketing activities of the company, which are largely
based on price differentiation. However, the number of total subscribers has
reached 5.1 million giving the company a 35% market share behind its single
competitor62.
The former marketing strategy of Telsim was rather harsh and directed towards
its competitor. Telsim tried to establish a brand name by presenting advertising
campaigns that tended to distort the competitor’s image. However, this did not
give any result and now Telsim is trying to make something on its own in order
to market its services.
Telsim always had a competitive edge against its competitor Turkcell. In
opposition to Turkcell, Telsim does not charge an initial subscription fee for its
customers and the fee per minute is lower than Turkcell tariffs.
Although the services provided are more or less the same with Turkcell
services, this huge gap between the numbers of subscribers of two operators is
an issue to be raised here. There is not any specific information about this
situation but we find it obvious that failure of Telsim is a natural result of
wrong managerial approaches and weak brand image. Telsim could not specify
a target group for itself and tried to get a share from the market through an
aggressive pricing method. As we have mentioned, this helped to double its
number of subscribers within a year, but Turkcell still leads by far in the
market.
Telsim also invests in GPRS, but it is following a different method than
Turkcell does. Telsim configures each switching unit to be compatible with the
new technology, whereas Turkcell configures the system from a main
switching unit from where the data will be launched to all units and all units
will be configured at the same time.
62
Telsim Corporate website, http://www.telsim.com.tr/
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5.3.1.3 Istim (Is Bankasi – Telecom Italia consortium)
Is Bankasi – Telecom Italia (Is-Tim) consortium won the GSM 1800 license in
April this year after the auction prepared by Ministry of Transportation. It is
expected that the market will undergo important structural changes after Is-Tim
launches its operations in January 2001. The operator has already invested $ 3
billion for the license and the duties and a few million dollars worth of
additional investment will take place during the establishment process.
The competitive edge behind Is-Tim is their strong financial and technological
backbone. Is Bankasi, Turkey’s first and one of the largest private banks with
its $ 1 billion capital and $ 8.8 billion assets forms the strong financial base of
the consortium, on the other side, Telecom Italia’s important contributions will
come out in the technological issues in reference to their experience in this
field.
Except for the technical and financial competencies, Is-Tim has several other
important assets that may push them to market leadership in a short time. First,
Is-Tim will use the latest technology, being a newly founded operator. The new
technology utilization will not only allow efficiency in services but also
decrease the operating costs dramatically, which is an important opportunity to
provide the best service with the lowest prices. Besides, Is-Tim has already a
vast customer base considering the large subsidiary portfolio with ten
thousands of employees that will be willing to subscribe to Is-Tim as a mobile
operator, provided that they will offer an acceptable service.
Ericsson has also established Ericsson İletişim A.Ş. in order to provide services
for this new account. Ericsson İletişim A.Ş. has mentioned that the result of the
auction is very important for Ericsson, since Telecom Italia has a supply
agreement with Ericsson for the whole world markets, therefore without any
question of competition Ericsson became the sole equipment vendor of Is-Tim.
The strategy of Is-Tim is rather controversial in the market. As we have
mentioned, Is-Tim has already invested more than $ 3 billion in the market and
some executives in the industry think that in the short run, Is-Tim will try to
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amortize this investment; therefore, the new operator will not be much
interested in GPRS or 3G technologies. However, with regard to our interviews
in Ericsson, we came out with a conclusion that these expectations will not
come true. Telecommunications market is rather a dynamic and ever changing
market. For an operator, in order to keep competitive, it has to cope with every
development in the industry, otherwise technology expires very rapidly and all
the investments that had been made could end up in a frustration. Same
situation is valid for Is-Tim. If the operator tries to collect the outcomes of its
current investments without following the new trends, the technology they have
will expire and over $3 billion investment will not provide the expected returns.
5.3.2 Application developers/ Content providers / ISPs
We think that one of the main obstacles for the development of mobile Internet
in Turkey is the insufficient level of Turkish content. This has been the major
problem during the establishment stage of the Internet in Turkey and still we
cannot say that this problem has been solved.
At present, the competition in ISP market is rather challenging. Although the
pioneers in the industry could not have the chance to turn their investments into
profits, many entrepreneurs dared to get into the market with the expectations
of a booming industry. Most of these entrepreneurs are small or big companies
whose core business is different from the computer and telecommunication
industry. The motive that drove them to invest in this business is that they find
it a useful marketing tool, which will help them to increase their marketing gap
and they find it important to have the opportunity to utilize these brands that
they created in ISP industry in their other business areas. However, this
approach had a negative effect on the development of the ISP industry. As the
new actors emerged in the market, the quality of the services provided has
diminished, because it was a price driven competition. Today, approximately
US$ 1 billion is needed in order to establish an appropriate ISP. However,
several entrepreneurs managed to establish their services with costs of US$
100,000 to US$ 1 million, which removed the entrance barriers of the industry
based on costs and allowed many actors to get into market. Because of this
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situation, users came across with a wide variety of ISPs, which lack in service
quality.
5.3.2.1 Super Online
Super Online established operations in 1996 and is 100% owned by Fintur
shareholders (25% Turkcell, 19.44% Yapi Kredi Bank, 35.3% Sonera, 12.67%
Cukurova Holdings and 7.59% Cukurova Investments). With 310 employees,
Super Online has managed to increase its customer base from 125,000 in
January 2000 to 263,000 by end June 2000, with the use of various promotional
campaigns. Currently 24% of Turkey’s Internet subscribers are with Super
Online (as of September 2000). It aims to increase this and have one million
subscribers by this year-end63.
As mentioned before, we find the key success factor in mobile Internet market
in the extent that the companies can cooperate with each other and create a
synergy. For instance, Super Online, Turkcell and Ericsson trio has already
established a synergy through partnerships or cooperation; this should be
transferred to the mobile Internet market, because we also find diffusion as the
most difficult and important stage of the mobile Internet market. Today,
technology is open for the use of every actor in the market. Achieving the most
from the market should be essential.
5.3.2.2 Ixir
Ixir was established in September 1999 as a subsidiary of Dogus Holding.
Dogus Holding owns 41% of Ixir, Garanti Bank and other individuals own 39%
and 20% respectively64. The Dogus Group is mainly a service company in the
banking and automotive imports sectors. It expanded into media recently with
the acquisition of TV channel NTV and is co-operating with Microsoft’s MSN
and News channel NBC.
63
64
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Within five months of establishing Ixir, the company launched its ISP and four
months later it became the second largest ISP in Turkey. In June 2000, it had
achieved the fastest subscriber growth rate in Turkey, with 1,700 new joiners a
day. By end-June 2000, it had an estimated 15% of Turkey’s Internet
subscribers or 170,000 members. 8,000 sales points and 450 retail stores helped
Ixir manage to generate such a fast growth rate.
Here, Ixir has another synergy that will create a different edge than Super
Online with Ericsson and Turkcell. Since Dogus Holding holds a 41% share in
Ixir, then Ixir might overcome the second greatest problem to be faced in the
development of mobile Internet. Finance in order to fund new thoughts and
projects is the second important handicap of the market after the insufficient
Turkish content. Using the financial resources of Dogus Group and getting
publicity with the help of the media intermediaries of the Group will solve
many problems from the beginning.
5.3.2.3 Vestelnet
The company was established in 1997 and Vestelnet Elektronik holds 88.25%
share in the company. Other group companies hold the remaining shares. In
order to maximize its customer retention rate, Vestelnet had a stock option plan
that offered its first 50,000 customers 2% of the company’s shares provided
they honoured their three-year agreement for Internet access. In June 1999,
Vestelnet launched a personal computer (PC) bundle product called Veezy Go,
which offered customers a PC and Internet access for three years (and Veezy
Credit Card). In the first five months following the launch, the company
attracted 68,000 subscribers. Unsurprisingly, KocNet, IhlasNet and the Medya
Group (Turkport) copied this business model, though four months later. The
latest offer from Vestelnet is Veezy Fun (Funkey), launched in May 2000,
which is a similar campaign, aimed at attracting another 100,000 subscribers
within 1 year65.
65
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Vestelnet has generated a strong brand name through effective advertising and
marketing. The potential synergies with the Vestelnet Group offer some
competitive advantages over the competition, as does their investment in a
state-of-the-art infrastructure. Their security system, a built-in card reader on
the keyboard, may provide some edge in the short term, since security is one of
the issues raised to be discussed for the mobile Internet. On the other hand,
there is also an opportunity to create a synergy with Microsoft, Lucent and Sun
Microsystems for the mobile Internet market similar to the one that has been
done for the Internet.
5.3.2.4 Turk.net
Turk.net was established in December 1995 originally as an ISP for consumers
and corporations. Sabanci Holdings, one of Turkey’s largest two
conglomerates, acquired a controlling 70% stake in 1999 for $ 25 million. With
strategic and financial commitment, Turk.net is well positioned for growth.
Management has invested $ 25 million to date – $ 10million in the past eight
months. The network has won both the Interpro Most Active Internet Service
Provider Company Award and MacWorld’s Internet Service Provider of the
Year Award 199866.
In February 2000, the company began servicing and operating
www.akbank.net.tr, Akbank’s ISP with the aim of capturing 110,000
subscribers of their forecast for a 330,000 year-end subscriber base.
At present Turk.net is not collaborating with any wireless companies. It
provides an SMS service, runs a WAP portal and has services that are device
and operator independent and interconnected between multiple devices. Indeed
the latest news from Sabanci is that they are pulling out of the race to bid for
Turk Telecom. This news keeps them further from the telecom sector and may
put pressure on Turknet to seek out a mobile partner.
66
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In our view, there will be pressure on Turknet to seek out a strategic alliance or
merger with another portal/mobile operator in the coming months. They are not
sufficiently differentiated from the rest of the market to warrant a strategy to
continue alone and we think that Sabanci will be unwilling to pour unlimited
funds into this area.
5.3.3 Equipment Vendors
Equipment vendors have two-way importance in the value chain. In fact, they
are the players who start and finish the process. Most of the equipment vendors
provide the technical hardware for the switching units and the networks but at
the same time, they also offer handsets for the end users.
In this section, we will discuss the situation of the closest competitors of
Ericsson in the Turkish mobile Internet market. However, we should also say
that Ericsson is not only an equipment vendor that merely tries to sell its
products and services. The company also tries to bring the new technology into
market, establish it properly so that many industry actors, including Ericsson
can get benefit out of it. In this sense, Ericsson is not only a market leader in
Turkey but also an absolute market maker.
5.3.3.1 Ericsson
Ericsson is the market leader for the network segment of the industry and has
long been the leader in the devices market, but the company has lost its market
share in terminal market. The main reason behind this result is that the
company sees the network market as the real profit generating branch and puts
a significantly higher emphasis on this business. The wireless
telecommunication infrastructure market in Turkey is worth around $ 21 billion
and Ericsson has a market share of 28% and is followed closely by Lucent
Technologies with a market share of 22%67. The competitors on the other hand,
are mainly in the market to sell their cellular devices. Considering the
concentration of their marketing efforts in this business area, it is a rather
67
Finansal Forum, 1 November 2000
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acceptable consequence that Ericsson has experienced a decrease in its market
share in terminal market
The company is differentiating itself from the customers by providing total
solutions and key-turn projects for its corporate clients. Beside, Ericsson has a
first mover advantage that has been operating in the market for more than a
century. Being the first in the market enables the company to distinguish the
needs and trends of the market, which makes the company a “market maker” in
addition to its leadership in different business segments
5.3.3.2 Nokia
Nokia is the closest competitor of Ericsson in terminals market. In the previous
years, the market share of Ericsson had obviously been larger than Nokia, like
50% to 30%. However, in recent years this situation has changed in favour of
Nokia where Nokia had a slightly larger share than Ericsson has. The main
reason behind this result is that market value for Nokia has considerably
increased. In addition, Nokia insisted on the production of more fragmented
models with slightly higher prices, since they object to the idea of shifting the
production plants to low cost labour areas. However, Ericsson thinks that the
earlier 50% market share is not a usual rate for a mature market and this
decrease in the market share was inevitable and adds that handset market is not
a profit-generating business area. Therefore, Ericsson Global plans to shift the
production plants to low cost labour regions, which will help them to achieve
their long-term strategies, including an at least 10% profit margin.
However, on the network side, the situation is totally different. Nokia is mainly
trying to sell its handsets in Turkey, whereas Ericsson is trying to build the
infrastructure for the new market. Naturally, on this point we can mention a
first mover advantage of Ericsson. However, diffusion phase is extremely
complicated. Ericsson is bringing the technology, building the network but in
the case that a good strategy is not established, Ericsson might get the same or
less share than whatever Nokia or others can get from the market.
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5.3.3.3 Panasonic
The market position for Panasonic in Turkey has been stable during the recent
years. In contrast to Ericsson and Nokia, Panasonic’s market share has not
changed dramatically and stayed between a 10-12% interval.
Panasonic has an important advantage in 3G technologies, since it is one of the
major suppliers for NTT DoCoMo’s i-mode and this technology is currently
more complicated than WAP technology. With the accrued experience from Imode, Panasonic is able to come out with new applications that will challenge
the closest competitors’ positions. However, this is what is expected from
Panasonic, but the company seems to be rather unhurried in this competition.
Panasonic has been one of the vendors, which prefers to follow the market
leaders or pioneers to launch a new product. Therefore, market value for
Panasonic is rather low. Besides, the company has not any significant
investment for the infrastructure and has a relatively weak performance as a
terminal vendor.
In the light of these facts, Panasonic could not present any serious attempt to
cope with the market leaders. However, 10% market share is still satisfactory
for the moment. However, as the market matures and customers demand more
fragmented products, this market share tends to decline.
5.3.3.4 Motorola
Similar to Ericsson’s solution for introducing GPRS into a GSM system, which
will latterly be explained, Motorola provides low cost investment models for
the mobile operators that are willing to promote their networks for GPRS. This
advantage is a natural outcome of company’s strategic alliance with Cisco
Systems, the data networking market leader in the world. The Motorola/Cisco
GPRS architecture can be implemented over an existing GSM network,
protecting operators' investment. Motorola's GSM infrastructure systems are
GPRS-ready, requiring only a software load with no modifications to existing
hardware.
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Motorola has been investing in the market through its collaboration with
Telsim, market’s second largest mobile operator. In February this year,
Motorola and Telsim announced an agreement valued at $100 million for
Motorola to provide infrastructure, handsets and associated services to expand
Telsim's GSM network. As part of that agreement, Telsim has named Motorola
as its exclusive regional supplier of GSM 900 equipment over the next three
years. The motive for Motorola behind this supplier agreement was that
revenues from these operations could be at least $1.5 billion according to
Motorola’s Public Relations68. Motorola, together with its strategic alliance
partner Cisco Systems, has supplied the GPRS technology equipment for
Telsim, which was launched by the operator during early August this year.
Although, Motorola’s investments have been significant in the market, the
brand value of the company is still in the handset market, revealing a 10%
market share, however it is also important to see that this rate has grown from
8% levels during the previous years.
5.3.3.5 Siemens
Siemens market strategy is rather similar to Panasonic’s, where the company
has preferred to generate the revenues from business areas other than mobile
telecommunication. The company is an important player in the energy and
computer industries. Siemens has also important connections within
government and Turk Telekom, which increase the importance of the company
as a competitor for equipment suppliers.
Siemens pursues a “me, too” strategy in the handset market with its latest WAP
enabled mobile phones launch. Nevertheless, as a result of the insufficient
distribution system, the product could not achieve enough customer awareness.
Beside the distribution channel used, we find Siemens as a rather late mover for
the handset market. Siemens has preferred to stay in fixed line business when
mobile communication began to grow and now we believe that it could be
68 Turkey's Telsim Launches GPRS in $100 Million Motorola Deal, 01.08.2000, Cisco official
website, www.cisco.com
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slightly late for the company to grab a satisfactory share in the market, but as
we have highlighted, their connections with the government could be an
important asset for the network market.
5.3.3.6 Alcatel (Alcatel Teletas)
Alcatel Teletas has an important competitive advantage in the fixed lines.
Although the company operates with a wide product range, including also Data
Communication Systems, Internet Access Products, Broadband Applications
(ADSL, ASAM, DANA, XDSL), Remote Access Unit Systems, and Internet
Access, their significance in the market is in the fibre optic cables. Being
established as a Research Laboratory for Turk Telekom in 1965, the company
is still close to government and is usually assigned for several government
projects in telecommunication.
The company also tries to be more active in mobile communication market.
The company decided to collaborate with Sabancı Holding A.Ş. and Doğuş
Holding A.Ş., the two of the largest conglomerates in Turkey69. The reason
behind this collaboration is to provide the necessary technical and financial
base to shoulder the responsibilities that will be profiled in the proposal given
to Turk Telekom auction in order to supply service and equipment for GSM
1800 services. This recent action reveals that the company is willing to take
part in mobile communication with strong partnerships.
In the handset market, the company has been successful in grasping
considerable market shares by launching latest technology products with
relatively low prices. Lately, Alcatel’s WAP-enabled products have been sold
from levels, such as $ 100.
5.3.3.7 Netas
Netas was originally established as a joint venture with the Turkish PTT (now
Turk Telekom) in 1967 to manufacture switching exchanges and other
69
Alcatel Turkey official website, http://www.alcatel.com.tr
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equipment for the national telecommunications system. In 1993, the Turkish
PTT transferred its shares in Netas to public ownership in line with government
policy. Netas now manufactures its own equipment for customers in Turkey
and parts of Eastern Europe.
Employing 1,650 people, 375 of whom are involved in R&D, Netas is the
largest private R&D organization in Turkey. The joint venture provides Nortel
with manufacturing, technical assistance, installation, and R&D support on
various projects. It also directs sales activities in several markets, including
republics in the former Soviet Union, Europe, Central Asia, the Middle East,
and Africa.
Netas provides services for state owned network operators, service providers
together with the business systems of the army. For this reason, Netas provides
static and mobile equipment for data and voice transfer. The enterprise is 53.13
% owned by Northern Telecom (Nortel) International Finance BV and 15% of
the shares belong to the Foundation to Support Turkish Armed Forces and the
remaining 31.87% is held by public investors. Netas has been quoted on the
Istanbul Stock Exchange Market since 1993.
The company has established its operations on the fixed lines and significant
investments for the wireless communication have not been declared. However,
their close relation with the government is an important asset for the company.
5.4 Financial Institutions
Together with the lack of sufficient Turkish content, financial resources to fund
the projects and ideas to develop the mobile Internet market are also another
problem for the moment. There is a need in the market for venture capital in
order to ease this problem. Banks stand as important entities of the financial
sector. They invest in the new technologies. However, these are only marginal
levels of investments stemming as a result of a “me too” strategy and at the
moment, they are not willing to fund the start-ups and projects, excluding some
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of the major banks like Türkiye Is Bankasi, which will establish a risk capital
fund of around $ 29 million.
On the other hand, international investors also became interested in the Turkish
market after the current government’s successful implementation of
privatisation program with the economic program to decrease the inflation rate.
According to International Institute of Finance’s estimation, there will be $ 13
billion capital flow to the Turkish market, from which $ 10 billion might come
as portfolio and the remaining $ 3 billion will come as direct foreign
investment. The government is also bringing new regulations into question in
order to increase the level of foreign capital inflow. It is projected that the new
regulations will essentially neutralize the barriers putting on ice the flow
foreign capital by providing the same conditions with the domestic capital for
the foreign capital flowing in.
5.5 Market Dynamics
The factors that will have most impact on mobile Internet development in
Turkey could be depicted as follows:
- The level of mobile penetration and mobile devices in the market
- The level of Internet penetration and Internet purchases via PC in the
market
- The level of consumer acceptance for m-commerce applications and
services
- The number of partnerships between network service providers, financial
service providers, other content providers and system integrators
- The number of user-friendly pre-WAP and WAP applications on the
market.
Mobile phone penetration rate in Turkey is much higher than the PC
penetration. The Internet penetration is expected to reach to 3.7% while the
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mobile telephone penetration will hit 19% by the end of the year70. It is
generally believed that the usage of mobile Internet will exceed and in some
cases replace the usage of conventional Internet. However, we also think that
mobile Internet will not totally replace PC usage for the Internet, but these two
mediums to access Internet will operate in a complementary way. One of the
major key success factors in developing a successful mobile Internet
application will be the structure of the services that will be provided for the
consumers. Mobile Internet should be able to offer services, which are based on
real time information, and services that are not practical to perform via
conventional Internet.
It is estimated that the gap between the penetration growth rates of mobile
phones and the Internet will broaden during the following years. For instance,
by the end of 1999, mobile phone penetration rate had revealed 13%, whereas
PC penetration rate was only 2.3%. On the other hand, looking at 2004
estimations, we see that the mobile phone penetration rate is 43% where it is
only 10.1% for the PC penetration71. There are several reasons that might
support this projection.
The main reason behind this gap is the cost of the technology. As we have
earlier mentioned device prices for mobile communication is diminishing
constantly as the technology expands. This is also valid for the PC prices,
however the price of a regular PC that can enable a user to access the Internet
might still be costly for most of the consumers.
Portability is another factor that might drive the mobile applications and mcommerce. Considering that access to WAP pages and specific Internet
applications via mobile phones will be more convenient with the third
generation mobile communication technologies, many Turkish consumers will
prefer cellular phones to PCs. This preference largely stems from cultural
behaviour. In contrast to the societies in Western Europe, Turkish people tend
to spend their spare time outdoors rather than staying at home. Suitable climate
70
71
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of the region is the basic factor behind this habit, where the sunshine could be
enjoyed through the four seasons of a year. Besides the climatic factors, we can
say that Turkish society has a collective structure, where the individuals prefer
to spend their time off with their families and close friends instead of staying at
home by themselves. Therefore, mobility comes out as an important and unique
criterion for the Turkish consumers.
The possibility to create synergy among different players in the market is also
another key factor for the development of the market. Market’s leading mobile
operator has strategic alliances with Ericsson and Super Online, Turkey’s and
Europe’s leading ISP for the individual users.
Pre-WAP applications are also a successful start for the current stage of
development. Turkcell’s cell broadcasting related to football matches being
played is an application, which is appreciated by the subscribers, and create a
good basis for the future usage of their cellular devices.
Market positioning is another issue to rise here, since mobile Internet is an
emerging market and it is important for the players to position themselves
optimally in the market until the revenues are generated. We think that strategic
partnerships and ‘early mover’ advantages will be determining factors for
players looking to establish their market positions.
The appeal of mobile Internet is that it creates a real-time information channel.
Strategic partnerships and joint ventures will be vital for equipment vendors,
network operators, financial service providers and content providers seeking to
establish a direct, personalised channel to the customer. The biggest issue for
most businesses will be to determine what type of alliances and partnerships
will add the most value to their market offering and improve their market
position.
Being an early mover has significant advantages. Companies should not wait
until the completion of their overall e-commerce strategies or until the market
has matured before developing an m-commerce strategy. M-commerce, like ecommerce, is a market opportunity that will work for companies, which have
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become accustomed to operating in Internet time. Early movers will be able to
shape markets, develop industry standards and gain market share. Therefore,
we find Ericsson Turkey as the potential market leader, since the company is
not only market leader in mobile telecommunication market but also market
maker for mobile Internet in Turkey.
From the establishment of the infrastructure to the performance of first service,
a number of players will drive mobile Internet in Turkey, providing a range of
both competing and complementary services as shown in Figure 4. Each of
these players will bring a set of resources, assets and skills to the mobile
Internet market. As we have already mentioned, the key player in this picture
will be the one that possesses the most significant relationship with the
customer and other players.
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Figure 5.1 Market players in the development of mobile Internet
Network Operator
•
Customer
information
Brand
•
Device
manufacturer
•
•
•
Financial Services
Provider
Interface design
Network supply and
support
Brand
•
•
Endorsement
Payment
processing
•
User base
MOBILE
INTERNET
Content
Provider
•
•
•
Infrastructure
Vendors and
System
Integrators
Content
Brand
User base
•
•
Customization
Experience
Source: Own
In this stage of the market, there is also a global debate concerning whether to
put the intelligence of the new technology on the devices or within the SIM
cards. We also find the outcome of this debate crucial, because it will create a
competitive advantage for the equipment vendors or the network operators
according to the decision taken.
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5.6 Drivers and Barriers of Mobile Internet in Turkey
5.6.1 Drivers
5.6.1.1. Low PC penetration rate
Although the penetration rate in the PC market is growing remarkably, the
figures still reveal considerably low levels compared to the West European
markets. This result mainly stems from the fact that PCs are still not
economical enough for most of the end users although a variety of sales
campaigns have eased the purchase of PCs. Besides, PCs still keep their
complexity for the usage of elder generation. These are important factors that
will drive the preference of mobile devices over PCs.
5.6.1.2. Internet Services used
The type of Internet services that are used mostly is another driving force
behind mobile Internet. Looking at the customer profile of the market, we
encounter with a majority of young consumers within the age interval of 16 to
35. This considerable segment of the market utilizes Internet for e-mail,
entertainment and chat, which are the applications that will also be provided via
mobile devices. The elder users prefer to use Internet for their professional
tasks, which are generally task-based transactions, which can also be performed
in mobile Internet technology. Therefore, we can say that mobile Internet will
respond to the basic needs of the majority of customers.
5.6.1.3. Mobility
Accessing and sending information when one is in motion could play a critical
role in Turkish market. Today’s business life is going towards a more mobile
phase. Similarly, certain cultural aspects of the Turkish society are factors that
increase the importance of mobility provided by mobile Internet.
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5.6.2 Barriers
5.6.2.1 State monopoly in telecom market
Although the impact of this monopoly will be removed to a large extent after
the privatisation of Turk Telekom, probably in 2002, currently state monopoly
is an important barrier against the development of mobile Internet and mcommerce. M-commerce in particular is directly affected by state monopoly,
where Turk Telekom charges a 15% tax for all income obtained by the network
operators. This situation hardens the development of m-services, where it will
be rather costly for the end users to utilize these services while an additional
15% income tax is being charged with each transaction.
5.6.2.2 Cost of services
Currently the flat and variable rates for the mobile communication services are
considerably high and with the present standard used, it is not economical to
use mobile Internet services. The market will certainly enter a new phase when
GPRS standard is launched in the beginning of 2001. It will replace the circuitswitched networks with the packet-switched networks, where the same line is
shared by more than one user and the speed of data transfer will increase up to
115 kpb /s, almost 20 times faster than today’s GSM technology. In addition,
the users are charged per transaction on GPRS network, which will have a
direct impact on mobile transaction costs.
5.6.2.3. Common usage of GSM technology
Only 150,000 of total 11 million mobile subscribers in Turkey are currently
using a WAP enabled device and the penetration rate for WAP enabled models
is relatively low. Even if the necessary technical infrastructure is fully
established for 3G technologies in the following years, we believe that there
might still be the possibility for existence of a user majority who will be
unwilling to upgrade their current models to another model that provides
Internet access. The equipment vendors should come up with exceedingly low
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prices and striking product facilities in order to attract these mobile phone
users.
5.7 An Evaluation of the Market
We believe that with the release of GPRS and 3G technologies, mobile Internet
will gain pace in the Turkish market in contrast to the previous wireline
Internet experience. The reason is that mobile Internet covers a larger extent of
the industry when it is compared to any other conventional or new industries.
Mobile Internet will have impact on industries differing from
telecommunications to IT, finance, retail and media. While the potential
audience and potential revenues for mobile Internet is huge, there is also
considerable uncertainty regarding the best approach to achieving these
revenues. We believe that during the establishment stages, the players will take
part in the Turkish market because of a “me too” strategy without knowing
exactly what the application is for and what the long-term financial
expectations are.
Together with the insufficient levels of financial resources to fund the new
projects, Turkish content comes out as an important problem for the
development of the market in the short run. Different from Western Europe,
particularly Scandinavia, there is not enough risk capital for the development of
new technologies, and current financial institutions such as commercial and
investment banks are not willing to invest in start-ups. However, during our
interviews with several players in the market we encountered the outcome that
it is not an important issue to obtain financing in the Turkish market as long as
one has a well-structured and practicable project. Therefore, content seems to
be the sole barrier in the short run.
Network technology is another issue to question as a barrier. Networks are
about to change radically with the introduction of packet data and later moves
towards third generation. With the privatisation and liberalization of Turk
Telekom, the implementation of the new technology will occur at a relatively
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rapid pace. Additionally, as the competition gets harder, the supplier push for
the national carrier will be more effective.
We find the optimistic figures concerning the mobile phone penetration as the
major driver for the development of the market. Killer applications coming
with the mobile Internet will be another driver for the increase in mobile phone
penetration. Personalization is a key factor to attract more players to penetrate
the market, since it creates customer loyalty, which weakens the possibility to
churn. Potential revenues could be another factor that will motivate the players
in the Turkish market. Although revenues will not be significant in the early
wave of applications, the revenue potential for all players is significant.
As it is earlier discussed, we expect that the network operators are closer to
obtaining the larger share of the revenues in the mobile Internet market during
the development phase as a result of increased airtime traffic on their networks.
However, the situation is not accurate for the network operators in the Turkish
market. It is an important handicap that the Turkish content on the Internet is
not at sufficient levels. Therefore, network operators will certainly rely on the
performance of the content providers and ISP/portals. Otherwise, network
operators should go for a vertical integration and try to launch Turkish content
in order to generate demand. However, this is not financially and technically
practical for the Turkish mobile network operators.
5.8 Comparative Analysis of the Turkish Mobile Internet Market
After having presented the outlook for the mobile Internet market in Turkey
and in developed country markets, especially in Europe that leads the adoption
of mobile Internet along with Japan, in this section, we will make a comparison
between the two. Our aim is to highlight the main concerns and potential
opportunities and threats in the diffusion process of this new technology in
emerging markets by using the Turkish market as a case. We have decided to
conduct a SWOT analysis to identify these concerns.
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First, we discuss the findings of a quantitative research, Global Diffusion of
Technological Innovations, which might give some useful insight regarding our
analysis below.
5.8.1 Global Diffusion of Technological Innovations72
In this paper, the authors propose a new methodology called the "coupledhazard approach" to study the global diffusion of technological innovations. To
illustrate the method and generate substantive insights, the authors apply the
approach in the context of the telecommunications industry using data on the
global diffusion of digital telecommunications switches across more than 160
countries on five continents. We will not go into details of this approach, the
methodology used and the numeric findings of the study. However, we will
present their findings and comments that could be useful for the interpretation
of our analysis.
The authors suggest that the diffusion processes result in the acceptance or
penetration of a new idea, behaviour or physical innovation over time by a
given social system. In a global context when the two social systems are the
community of nations, diffusion across countries takes place in two distinct,
though related phases: the implementation or trial stage and the
confirmation stage.
The objective of the research is to understand the diffusion dynamics of a
special product category, technological innovations, which requires that
diffusion theory and the resulting models be adapted to take into account the
effect of network externalities. Technological innovations such as computers
or telecommunications products tend to have unique characteristics as
compared with other industrial or consumer goods. In particular they often
exhibit ‘network externalities’73 in which consumers benefit from other
consumers’ use of a product based on the same technology This is particularly
true for the phenomenon we study, the mobile Internet. These network
72
73
Dekimpe, Parker and Sarvary, (2000)
Katz and Shapiro (1985)
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externalities mean the diffusion process of technological innovations require
increased coordination of consumer behaviour and the standards and
supervision by central decision makers whether it be an industry association,
the governments or some other initiative. This is true especially in the early
stages of the diffusion process.
The authors argue that the global adoption of a technological innovation
comprises two stages74, which are conceptually different (but related measures
of innovativeness across countries:
• The time between an innovation’s first availability in the world and its first
appearance in a country, that is the implementation stage
• The time between the innovations initial trial in a country and its full
adoption or substitution, that is the confirmation stage
The empirical results provide interesting theoretical insights that also have
important managerial implications. We summarize these results below
• The more countries that have adopted or the longer the international
experience with an innovation, the higher the chances that other countries
will also implement the innovation.
• For the empirical case studied (digital telephony), it is found that innovative
countries are wealthier.
• Countries with homogeneous social systems reach full confirmation faster.
Homogeneity might be in terms of ethnic diversity, income distribution and
the like.
• Laggard countries (the late adopters) have faster within country diffusion
rates.
• For the rates describing transitions to full substitution, the data provide
strong evidence for a negative installed base75 effect. Even if the innovation
is available in the social system, social system members are reluctant to
74
75
Rogers, Everett M. (1983)
In this case it is the analog telephony
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switch to the new technology. In our case, the conventional GSM services
mainly based on voice-transfer could be considered the installed base.
However, users prefer to replace their handsets very frequently. The typical
average time to obtain a new handset with new features is around 18
months76.
In the light of these findings and the analysis we have presented so far, we
develop a SWOT analysis comparing the developed country market and the
Turkish market.
5.8.2 SWOT Analysis
The following table summarizes the strengths, weaknesses, opportunities and
the threats regarding the Industry development in Turkey. Each of these is
discussed in details in the following sections.
76
Financial Times, 06 December 2000
130
Table 5.3. SWOT table regarding the comparative analysis
#"
Strengths
#"
Weaknesses
!"Modern telecommunications infrastructure
!"Presence of skilled labour in IT field
!"Established free market structure
!"Increasing competition in the mobile
communications sector
!"Well-educated young generation that
constitutes the majority of the population
!"Macro-economic and political instability
!"High degree of State control in the
telecommunication industry (e.g. fixed
line monopoly)
!"Weak financial institutions and illstructured capital markets
!"Low education level on average
!"High levels of regional and income !"High levels of regional and income
inequality
inequality
#"
Opportunities
#"
Threats
!"Many large cities in the West with close to
EU average level of income and needs of
mobility and real time information
!"Liberalisation and deregulation of the
telecommunication
!"Gateway to the regional countries as well
as the Middle Asian Turkic states
!"Low penetration rate wireline Internet
(mainly, access from a PC)
!"Significant level of GSM penetration
!"High cost of GPRS and other new
generation
technologies
compatible
terminals (handsets) against lower than
EU level of average household income
!"High degree of resistance against the
privatisation of the fixed line monopoly
and deregulation in general
!"Expected negative economic growth in the
short run
!"Bottlenecks may occur when the platform
takes off and growth gains pace
!"Low penetration rate wireline Internet
(mainly, access from a PC)
!"Significant level of GSM penetration
5.8.2.1 Strengths
As mentioned earlier, Turkey has a modern telecommunications structure, both
in terms of mobile and fixed line networks, which are comparable to the ones in
Western Europe. At this moment, the skilled labour supply for both for
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technical and administrative jobs is adequate77. Turkey is one of the most
established and oldest (!) emerging economies, where all required major
institutions are present. The competition in the mobile communications sector
is increasing. This is expected to accelerate the adoption of new technologies
and diversify the services while bringing the prices down for the end users.
These in return would increase the diffusion rate of the mobile Internet
platform in Turkey.
On the consumer side, it is worth noting that well-educated young generation
constitutes the majority of the population in the Western regions. This segment
is a perfect example of a global cultural affinity class. Cultural affinity classes
exist in terms of age brackets or, more generally, across socio demographic
categories, for example people between the ages of 15 and 20 all over the
world78. It is generally accepted that consumption behaviour, values and
lifestyles among the young generations, especially aspects regarding hi-tech
products and services are more homogeneous in a global context than they are
for the older age groups79. Young people easily adopt new technologies and
like trying new products and services in general. This generation is much more
used to data usage than the older generations, which associate communication
with voice rather than data transfer.
Turkey as a developing country has significantly lower levels of income
compared to i.e. EU averages. At first sight, this seems to be a great barrier for
the rapid penetration of technological innovations that normally require
significant purchasing power to adopt. However, Turkey is a country that
experiences high levels of inequality in income distribution as well as regional
inequalities. Although it is not possible to make objective forecasts about the
size of the consumer groups with income levels similar to EU averages80, one
77
This issue has been brought up in all our interviews with professionals from different parts of the
value chain and this interpretation reflects the common opinion.
78
Usunier (1996)
79
Usunier (1996)
80
The last study that concerns the income distribution and the changes in income levels of the
different segments of Turkey was conducted in 1994 by DIE (State Institute of Statistics,
132
could conclude that in the industrial agglomerations in the west and the
Mediterranean coast there are around 3 million consumers of that kind. If the
purchasing power parity is used as a criterion these numbers could reach up to
6-7 million consumers. Based on this calculation we conclude that the potential
number of users that could be able to utilize services and products offered via
mobile Internet could reach up to 10 million people, given the tendency of the
general Turkish consumer that would not hesitate to spend a larger share of
his/her income on technology related products and communication than their
European counterparts81 would do.
These factors come up as strengths in the overall evaluation of the Turkish
market.
5.8.2.2 Weaknesses
Turkey has been the victim of many crisis caused by the macro-economic and
political instability during the 90s. We have already discussed this in the
beginning of Chapter 5. This atmosphere is likely to continue at least in the
middle term, as there have not been any significant changes in the institutional
network to suggest otherwise.
The excessive degree of control by the State in the telecommunication industry
(e.g. the existence of a state-owned fixed line monopoly) may harm the
development process of mobile Internet as well as other technological
innovations as the political and ideological concerns may override the
economic wisdom in decision-making.
Weak financial institutions and ill-functioning capital markets is another
problem of the Turkish economy. These do not only limit the effective flow of
national funds towards investment projects but also scare away the muchwww.die.gov.tr). Thus, it is not reliable as there have been many economic developments with
significant redistributive effects since then.
81
This opinion about that tendency of the average Turkish consumer has been shared by all our
interviewees. It is also in accordance with our own observations though we have not been able to
come across any quantitative research with results to justify this interpretation.
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needed foreign capital flow. We have already discussed the importance of
venture capital investments in the development of the mobile Internet market.
On the consumer side, one of the biggest problems is the low level of overall
education and a lack of orientation in the educational institutions towards
information technologies. These factors limit the ability of the consumer to get
used to using complex technical devices such as the WAP and GPRS
compatible end-user terminals. They also act as a barrier to shift from voice
communication to more sophisticated data communication activities.
We have cited the ‘high level of regional and income inequalities’ as strength
in the previous section. However, this could also be seen as a significant
weakness as it narrows down the potential customer base, especially in the
initial phases of the diffusion of the mobile Internet. We have already discussed
the importance of network externalities for technological innovations82.
5.8.2.3 Opportunities
The real power of mobile Internet is its ability to bring (1) real time
information (2) anywhere, (3) anytime. We have already discussed that. It is
obvious that these features can be best exploited and turned into cash in large
cities where people are most mobile and need real time information in the
complex environment of the large metropolis. In Turkey, there are many large
cities of the kind in the West with household incomes close to EU average level
of income. Industrial agglomerations such as inner city Istanbul zone, Izmit,
Bursa, inner city Izmir and Adana are a few of these towns, which offer
opportunities for the development of products and services on the mobile
Internet platform.
Liberalisation and deregulation of the telecommunication industry and the
privatisation of the national fixed line monopoly will attract global players and
bring new opportunities to the industry.
82
See section 5.10.1.
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Turkey is a gateway to the regional countries in the Balkans, Black Sea
countries, Caucasians, as well as the Middle Asian Turkic states. This is true
for all players in the value chain. For example, the network operator Turkcell
has other GSM licences in the neighbouring and related countries such as
Moldova, Georgia, Kazakhstan, etc.
Low penetration rate of the wireline Internet (mainly access from PCs) could be
an advantage for the country. That is because the European and American
users, that are accustomed to the benefits and glory of the Internet have big
expectations from the mobile Internet and are likely to feel disappointed when
they use these services. However, even e-mail could be a striking service for
Turkish users, which are not already familiar with it. Services such as online
payment and stock purchases could become more widespread between Turkish
mobile Internet users as they do not have an alternative medium such as their
PCs.
The significant level of GSM penetration of the market could also be
considered as an advantage. People who are already familiar with the benefits
of mobility could shift to even more sophisticated services and products offered
on the new platform.
5.8.2.4 Threats
GPRS compatible terminals and other new generation handsets and PDAs are
likely to have high costs, at least initially. These costs could act as a significant
barrier to the adoption of these new terminals as the average household income
is much lower than EU level of average household income.
There is a strong front with members from the political arena, the media and
the economy circles in Turkey that is against the privatisation of the fixed line
monopoly and easing of State control and deregulation in general. This could
be an obstacle or at least delay the deregulation in the market.
Turkish economy is almost certain to experience negative growth in the first
half of 2001 and maybe even for a longer period. Despite the fact that the
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telecommunications and Information technologies markets are expected to
grow considerably even during a big slump in the economy, the cutbacks in
corporate budgets and the decrease in real household incomes is likely to
reduce the magnitude of this growth.
We have stated that the country has adequate amount of skilled labour in IT
related fields. However, bottlenecks may occur when the mobile Internet
platform takes off and growth gains pace in wireline penetration as well. This
will bring about cost pressures to the industry, increasing the cost to the end
users in line with it. On the other hand, that threat is a general phenomenon
valid in all markets including Sweden83.
We have quoted low penetration rate of wireline Internet as an opportunity
above. It is at the same time a threat for the development of the market.
Consumers are not accustomed to using complex data in communications
although the data usage on 2nd generation mobile networks (namely, GSM) is
much higher than U.S. levels and is at the same level or even higher than
European levels, which are around 10% data transfer against 90% voice
transfer. It has taken almost 5 years in the west to get people used to using
online services instead of or in line with conventional services. For example, to
make people use e-mail instead of going to the post office at the corner has
been a real challenge in many countries. It might be an even bigger challenge in
Turkey.
We have presented the negative effects of the ‘installed base’ to the diffusion of
the technological innovations84. The considerably high level of GSM
penetration in the country might be a serious obstacle in the first phases of the
mobile Internet take off as people with conventional GSM handsets will be
reluctant to switch to new generation terminals. One relieving factor is the
rather short renewal times for the mobile terminals. Even then, this installed
83
We have heard about the scarcity of skilled labour in these fields from many professionals in the
industry both in Sweden and in Turkey. Mikael Stenhamn of ICtech ironically quotes “Everybody is
an entrepreneur today. It is very hard to find people to employ. Everybody has his own business idea
and wants to work for himself.”
84
See section 5.10.2.1
136
base effect will be an obstacle in the initial phases of this transition from 2nd
generation to new technologies.
Summary
Now, we have the suitable knowledge basis to presume the general trends and
norms that will emerge in the Turkish market for MI technology. In accordance
with our findings from this chapter, we will continue with the analysis of our
case company to judge whether the company is eligible to cope with the current
and future conditions of the national market.
137
6. INTERNAL ANALYSIS
This chapter is a presentation of Ericsson’s operations in Turkey. The main
purpose of this part is to identify the position of the company within the Turkish
telecom market.
6.1 Ericsson Turkey
Ericsson has had operations in the Turkish market since 1890s, however the
existence of the company with an organization in this market begins in 1986
with the establishment of Ericsson Telekomunikasyon A.S (ETAS). Ericsson
has made important contributions in the development of mobile
telecommunication within the country since 1993. Ericsson Turkey was one of
the founding members and today the sole supplier of Turkcell, market’s leading
mobile operator.
Today, Ericsson Turkey functions as a total solution provider by offering
solutions in infrastructure, corporate communications and the products for the
end users. The company is not only a market leader in most of the business
segments, but also a market maker for the emerging markets, such as mobile
Internet.
Turkey has been the fourth largest market for Ericsson by taking up 5% of the
total sales in the overall world markets. In the beginning, the demand from the
domestic market was on the high end products. This has resulted in making
Turkey one of the few markets where the company managed to stay profitable
in consumer products segment. However, lately there has been a shift in
demand towards cheaper low-end products and this has largely eroded
profitability.
The role of Ericsson is significant in the establishment and development stages
of WAP technology in Turkey. With the ‘Crea-World’ investment, the
company has performed an important step to achieve first mover advantage in
this new telecommunications technology. We find it important to mention
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briefly about Crea-World in order to emphasize the role of Ericsson in the
development of next generation technologies.
6.2 Crea-World: A Kick-Starter for Mobile Internet in Turkey85
Crea-World is a greenhouse, established by Ericsson Turkey in Istanbul. It will
serve as a development base for mobile Internet applications by gathering
together all application developers, content and service providers, network
operators and all corporate and individual entrepreneurs that have understood
the business potential of mobile Internet services for users of mobile phones
and terminals.
Crea-World has already partnerships with Turkcell, market’s leading mobile
operator, Super Online, Turkey and Europe’s leading ISP for individual
customer solutions and several hardware and software suppliers including
Microsoft, IBM, Cisco Systems, Compaq and Oracle.
Establishing such a greenhouse, Ericsson Turkey aims to ease and speed up the
mobile Internet take off in Turkey by supporting the partners with the
following offerings:
- Technical resources and environment for developers to use while they
are designing and developing wireless applications.
- Technical support services to assist developers with problems
encountered during the development process.
- Test facilities to let developers test their applications in a realistic
wireless environment.
- Local training, covering a broad range of topics about Ericsson products,
development tools and wireless technology.
- Conferences and several events about a variety of subjects regarding
wireless technologies.
85
This section is derived largely by using Crea World Business Plan, 2000
139
- Not only technical support but also business support will be provided to
guide and assist developers in the marketing, promotion and distribution
of their applications.
Crea-World will play a critical role in the fulfilment of Ericsson Turkey’s
business strategy, which is about being the market leader through the whole
customer value chain. It is expected that as an outcome of Crea-World, airtime
consumption in Ericsson supplied mobile networks will be increased, which
will help the sales of Ericsson mobile network infrastructure. Besides, a
dominant market share will be achieved for Ericsson platforms, products and
services in mobile Internet area.
6.2.1 Crea-World Strategy
The main business strategy of Crea-World can be described as providing and
managing a physical and virtual environment where a full range of Ericsson
facilities could be utilized by developers. These facilities cover technical and
business support, suitable and motivating physical environment and
development platforms where developers are able to test their applications.
Crea-World gives an additional importance for the sectors such as bank and
finance, travel and transport, media and entertainment together with the retail
market, considering that these will be the key sectors where m-commerce will
begin to generate revenues.
6.2.2 The impact of Crea-World on the Turkish Mobile Internet Market
We believe that Crea-World will shoulder a vital responsibility in this
establishment stage of mobile Internet. Here, it is appropriate to raise the main
barriers in the development process of the market in order to clarify the
precious role of this greenhouse.
We have cited too insufficient Turkish content levels as one of the barriers for
the Internet penetration rate growth in Turkey. The same barrier is also valid
140
during the development process of mobile Internet. It is believed that there is
sufficient supply of content providers in the market, however the main problem
is that these providers should be technically and financially assisted in order to
launch their services efficiently. In this point, Crea-World plays a vital role to
provide technical assistance and ease the procedure to obtain financial
assistance for the projects that are developed within Crea-World organization.
The existence of such an organization will not only encourage the individual
and corporate entrepreneurs but it will also alter the approaches of the financial
institutions, which are currently less willing to invest in the new economy.
We have distinguished Ericsson Turkey as an exclusive player in the market
after presenting its contributions for the market in the development of new
technologies. Now we will go deeper into the organization by observing and
analysing their resources and capabilities with the comparisons to its major
competitors.
6.3 The Resource Structure of Ericsson Turkey
6.3.1 Tangible resources
In this section, we will have a brief look at the tangible resources of the
company and try to present an evaluation on company’s financial and physical
resources.
6.3.1.1 Financial resources
Turkey is one of the most important market areas for Ericsson. This importance
has increased during 2000 as the results of the third quarter reveal that 5% of
total orders and sales came from Turkey, which equals a total sales level of
around $ 1 billion. With the current sales figures and heavy investments for
market development, Ericsson Turkey tries to attain the long-term corporate
financial targets. The global strategy for Ericsson is to grow faster than the
market, which means that increasing sales by more than 20 percent annually, a
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return on capital employed of 20-25 percent, and an operating margin of at least
10 percent86.
6.3.1.2 Physical resources
Physical resources are important criteria to analyse the market positions and
strategies of the manufacturing companies, since they are the most essential
determinants of the production capacity and revenue structure of the company.
The operations of Ericsson in Turkey can be defined within the borders of
providing products and services both in handset and the network market. The
company should be evaluated as a service provider and consultant company
rather than a manufacturing company. Therefore, we find the physical
resources of a secondary importance level for Ericsson Turkey’s case and
assume that it is more necessary to analyse other resources that have significant
direct contributions in the company’s strategies.
6.3.2 Intangible resources
We will question company’s resources that are related to technology, reputation
and culture under intangible resources.
6.3.2.1 Technological resources
The distinguishing characteristic of emerging industries, which are in the
introductory and growth phases of their life cycle, such as mobile Internet is the
central role that technology plays in competition87.
Ericsson gives an additional importance to 3G mobile communication systems,
believing that the greatest market opportunities for mobile systems and
terminals will be in the GSM and UMTS areas, which are the most widespread
standards. These standards are said to be Ericsson’s key areas for mobile
Internet. CDMA (Code Division Multiple Access) and TDMA (Time Division
86
87
Grant (1998)
142
Multiple Access) will be refocused to support Ericsson’s mobile systems
customers. Although the profit-generating branch of the business is the
network, Ericsson confirms that mobile phone market is a rather attractive
business in its own right, and at the same time, an important competitive
advantage for the mobile systems business.
Strategic alliances are also vital for the business. New technologies established
as outcomes of these alliances will provide immense financial and technical
resources for their partners. Bluetooth Special Interest Group is one of them,
which is established to develop Bluetooth technology; a wireless technology
that will reshape the personal connectivity market by providing freedom from
wired connections. As mentioned before, it is a specification low-cost radio
solution that is providing links between mobile computers, mobile phones and
other portable handheld devices, and connectivity to the Internet.
Providing low cost GPRS investment models for the GSM network operators is
also a crucial technological asset for the company. As we have earlier
explained Motorola’s GPRS-ready GSM networks, Ericsson also offers a
similar product for the operators willing to upgrade their network for the 3G
technologies. The GPRS support nodes, serving GPRS support node (SGSN)
and the gateway GPRS support node (GGSN) enables the upgrade of the GSM
networks into GPRS, but different from Motorola’s GPRS-ready GSM
network, GPRS support nodes could also be used to upgrade GPRS networks
into UMTS or TDMA system.
When analysing the technological resources of Ericsson Turkey for mobile
Internet development, we relied on Grant’s (1998) three characteristics of
emerging industries: Knowledge creation, invention and innovation. In this
framework, invention is described as the creation of new products and
processes through the development of new knowledge or, more typically, from
new combinations of existing knowledge. Innovation is the initial
commercialisation of the innovation by producing and marketing a new good or
service or using a new method of production. As the innovation occurs, if it is
successful, it becomes diffused: on the demand side, through customers
purchasing the good or service; on the supply side through imitation by
143
competitors. Diffusion process is critical for Ericsson Turkey, since the basic
role of the company is to achieve acceptance for the new technologies launched
by Ericsson Global. On the other hand, there is also another diffusion concern
that Ericsson Turkey has a leading role in the establishment of new
technologies in the market and other competitors could use these facilities.
Therefore, the second diffusion concern is about the question of how Ericsson
Turkey can retain the fruits of its investments within the organization.
As Ericsson Turkey is not a manufacturing company, we will handle these
mentioned criteria by considering the company as a service provider. Quick
decision making processes is one of the competitive advantages of the
company, which enables shortening the processes to turn inventions into
innovations. Intra organization communicational skills and successful
adaptation of teamwork are the key determinants behind this competitive
advantage. We find this aspect a vital asset, since the technology is growing
remarkably fast to cope with it. Besides, the company’s strength in invention
and innovation processes, as a result of being a market maker, the company has
always the potential to come out with new ideas that have significant roles in
market and product development. Remotely Controlled Switching Unit
Upgrade System is just one of the examples that we can give from the earlier
projects that have been successfully implemented by Ericsson Turkey. The
system enables the mobile operators to upgrade all their switching units
spontaneously and in the shortest time that has been performed until now.
6.3.2.2 Reputation
While handling reputation, we focus on brand recognition of Ericsson in
Turkey, together with the fact of whether there is a price premium on Ericsson
products over the competing brands. Additionally, the potential of the products
to create customer satisfaction with the level and consistency of company
performance is the other major determinant to evaluate how reputable the
company is in Turkish telecom market.
Ericsson is not only the market leader, but also a market maker in Turkey.
Therefore, Ericsson has always been the leading brand to be recognized by the
144
consumers in telecom industry. However, considering the terminals, Ericsson
does not utilize this advantage in terms of product prices. In contrast to its
closest competitor Nokia, Ericsson prefers to sell cellular devices with
relatively low prices and the company has also plans to shift the production
plants to low labour cost plants, which will enable the company to increase the
profit margin while keeping the prices of the products stable or lower.
This strategy is rather controversial, however we believe that Ericsson’s
strategy has made remarkable contributions to enlarging their customer base.
Considering the general norms of the Turkish customers, price has an important
impact on the decision process during purchasing. It is rather pragmatic for the
Turkish customers to prefer a brand, which offers more or less the same
benefits as another brand, but at a lower price.
Ericsson Turkey differentiates itself from its closest competitors by providing
total solutions in all the business areas of mobile telecommunication and as a
result of this approach; the company manages to be the market leader in both
handsets and the network market. Compared with the competitors, the
company’s strategy is rather unique where it initially invests in the
infrastructure and establishes the development base for the market, then tries to
market the terminals and network equipment after assuring that the system
operates appropriately.
When we make a comparison with the other vendors in the market, it is
observed that the major competitors are mainly in the market in order to launch
their latest wireless devices and there is not any specific contribution or
investment for the wireless infrastructure. Being one of the earliest players,
Ericsson has a pure opportunity to create first mover advantage in many
emerging business areas in Turkey’s telecommunication industry.
6.3.2.3 Culture
The most common problem encountered in the multinational companies is the
clash between the corporate culture of the company and the national culture of
the domestic market. It is not possible for the corporate culture to defeat the
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national culture within short-term, however the harmonizing of these two
cultures should be essential rather than putting one against the other.
Ericsson’s corporate culture has in part been characterized by people’s desire
and ability to create their own solutions their own way88. However, the
shareholder value is also essential. Therefore, this strategy is acceptable and
ideal for the personal development of each member of the organization, as long
as the corporate goals are achieved. Besides, these solutions should be well
evaluated in order to meet the market requirements. Ericsson Turkey can be
accepted as successful in balancing these two cultures. The company
implements the corporate culture within the organization, giving every single
employee the opportunity to contribute in overall business, but on the other
hand the company is also very successful in implementing the national culture
for their external relations with the government and the corporate customers.
6.3.3 Human resources
6.3.3.1 Specialized skills and knowledge
Individuals’ skills and capabilities can be assessed from their job performance,
their experience and from their qualifications. However, these are only
indicators of the individuals’ potential. The problems of recognizing people’s
abilities are intensified by the fact that people work together in teams where it
is difficult to observe directly the contribution of the individual to overall
corporate performance. As a result, firms tend to resort to indirect approaches
to assessing performance, such as hours spent at the office, enthusiasm,
professional appearance, and attitudes.
Therefore, considering that Ericsson Turkey is to develop in this new market, it
has to adjust to the new environmental conditions, and to exploit new
opportunities, then it must have knowledge not only of how its employees
88
Björn Boström (1999)
146
performed in their past jobs but also of their range of skills and abilities. In
recent years, many companies have initiated broadly based, detailed and
systematic appraisals of the employees’ knowledge, skills, attitudes and
behaviour. The major criteria in these appraisals were achieving objectives,
problem solving, interacting with the others and teamwork performance.
6.3.3.2 Communication and Interactive Abilities
Increasingly, firms are recognizing that in evaluating their human resources it is
not just individuals’ expertise and knowledge that counts but also the ability of
the employees to work effectively together. Organizational capability depends
not just upon the resources that are brought together but also upon the
company’s ability to integrate the various resources.
6.3.3.3 Motivation
Several determinants have serious impacts on the level of individuals’
motivation. Core and side benefits obtained by working in that company are the
basic subjects for the level of motivation. Beside these benefits, we should also
indicate the condition of the working environment. In an environment where
each individual can have the chance to reveal and extend its potential will
certainly be more motivating than a centralized strictly managed organizational
environment.
As a result of its corporate culture, Ericsson Turkey gives each of its individual
members the chance to participate the ongoing processes whether the task is
directly or indirectly related to that specific individual or not. Decentralized
organizational structure is the leading driving force behind this attitude. It is
stated during our interviews that, Ericsson’s popular slogan of “Make Yourself
Heard” has been publicized in Turkey after the phrase had been translated to
Turkish and Ericsson Turkey did not have to negotiate with the headquarters
for this decision.
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6.4 Ericsson Turkey’s Strategy
The company’s main goal is to provide total solutions in each phase of the
customer value chain. As we have studied the corporate capabilities of the
company, Ericsson Turkey is rather successful in the fulfilment of this strategy.
In fact, we find this strategy as the essential path to be followed, since the
market is following the initial stages of development phase. Therefore, each
equipment vendor that is trying to achieve a market share should come out with
the abilities to respond to problems in every business area within the industry.
Ericsson’s market leader position does not only stem from their being the first
in the market but also their heavy investments from the infrastructure to the end
users. The company has an unquestionable position in the networks as being
Turkcell’s sole equipment supplier and Ericsson’s additional interest in 3G
technologies will reinforce this relation, since Turkcell is also willing to invest
to upgrade its current network for the next generation mobile technologies.
Ericsson has also been dominant market leader in the cellular devices during
the previous years with a market share of 50%. However, this was not a typical
market share when it is compared with the mature markets. This share has gone
down to 30% recently, which had also been expected by the company
management. On the other hand, the market share of Nokia, the closest
competitor, has increased to 35% leaving Ericsson behind. It is generally
affirmed that the reason behind Nokia’s success in terminal market is their
recent developments in the design of their products, where the cellular phones
became more appealing to the end customers. On the other hand, Ericsson still
provides cellular devices that are technically functional but at the same time
lack the aesthetic features in a secondary importance level.
Handset market is not the profit generating area for the manufacturers, but this
does not mean that they have a minor importance. First of all, the
manufacturers will not be able to sell network equipment as long as they cannot
sell any devices or vice versa. In addition, devices are important for the
manufacturers’ market values, which are presented to the end customers and
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market value will certainly affect the network business. Market share and brand
appreciation for Nokia in Turkey has increased recently and exceeded
Ericsson’s. We find this as a result of Ericsson’s corporate strategy, which is
about giving more importance to network market and delegating the device
market to the independent distributors. However the headquarters states that
they will shift the production plans to low cost areas and doing this, the
company will be able to increase the profit margin up to 10%. This strategy
will have a direct impact on the terminal prices and Ericsson should benefit
from scale economies, therefore an additional importance should be given for
the cellular devices beside the network market.
Nokia has managed to whip some market share from Ericsson by successful
marketing campaigns and a well-structured market segmentation strategy.
Although Nokia devices are not price competitive when compared to Ericsson
models, the company managed to increase sales and grab around 20% of
market share from Ericsson. Now, Ericsson should find the answer to the
question of why this 20% of the customer portfolio has shifted to Nokia
products and find out what was appealing in those terminals that do not exist in
Ericsson products. These are critical issues to be discovered, because we see
the devices as the most efficient advertising tools for a manufacturing company
although they have considerably low profit margins compared to network
business.
6.5 Organizational Capabilities
Organizational capabilities have an additional importance in the case of
Ericsson Turkey, because new market development requires the integration of a
wide diversity of specialized knowledge and skills. Grant (1998) highlights the
creation of cross-functional product development teams as a solution for this
issue. The most difficult problem in this point is the team’s ability to access the
breadth and depth of functional knowledge relevant to the product and then
integrating that knowledge.
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Considering that Ericsson Turkey is not a manufacturing company, these
capabilities should come out in functional areas such as corporate management,
management information, marketing, sales and distribution.
The major capabilities for corporate management can be mentioned as effective
financial control system, expertise in strategic control of diversified
corporation, effectiveness in motivating and coordinating divisional and
business-unit management. Comprehensive and effective MIS network, with
strong central coordination is the chief capability that is expected in
management information. Marketing on the other hand, needs good brand
management and promotion while promoting and exploiting reputation for
quality and quick responsiveness to market trends, especially in these initial
stages of the mobile Internet development. Performing services effectively with
the adequate offerings is the essential capability for sales and distribution
function. Effectiveness in promoting and executing sales, efficiency and speed
of distribution with the quality and effectiveness of customer service are
needed for a successful sales and distribution function. However, Ericsson
Turkey is not directly involved in this functional area regarding the handset
market. The company prefers to outsource this function by delegating it to
other private distributors in the market, generating around $ 200 million total
handset sales.
Still, there is a problem in assessing these capabilities in the mentioned
functional areas. Ericsson Turkey is unquestionably the market leader in these
functional areas. However, these criteria are also a reference for the future
performance and objectivity are essential in order to evaluate these capabilities
properly. Therefore, Ericsson Turkey should not limit its evaluation of
capabilities with reference to the domestic market environment conditions. The
company should also compare its strategy and achievements with its closest
competitors’ capabilities in other market areas, developed markets in particular.
As the telecom monopoly is liberalized in Turkey, the speed of change will be
implausible and the domestic market will be able to catch up with the
developed markets. Then, the current market conditions are expected to change
abruptly.
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The fact of being the market leader and having several competitive advantages
over its competitors should not mislead Ericsson Turkey, since sustaining the
competitive advantage is essential rather than gaining it. Together with all the
other equipment vendors, Ericsson is in the market mainly to sell and distribute
its terminals and network equipment. Therefore, Ericsson Turkey tries to
achieve a competitive edge by providing total solutions for its customers.
Without any doubt, this advantage is valuable for the company in this phase of
the market, however its sustainability is questionable. First, the company is
operating in a technology intensive market where the speed of change shortens
the duration of any specific competitive advantage related to product or service
offered. In addition, in today’s market conditions, technology is exploited by
each player to an utmost extent, where the chances for innovation are more or
less the same for each vendor. Therefore, Ericsson Turkey should not be
hesitant in bringing the new standards to Turkish market as they are newly
launched in developed markets. It has always been discussed that investment in
new generation mobile communication will be an early action in Turkey since
the first launch of WAP technology. We believe that the technology intensive
market does not accept a term such as “early investment”, in countries similar
to Turkey, the conditions could change unexpectedly and rapidly. Therefore,
waiting for the development of the technical infrastructure can easily drive the
vendors to failure.
Bringing the new technologies to the market before the other competitors will
certainly not be the sole driver to sustain the competitive advantage of being
the first mover in the market. We should highlight three important key
organizational capabilities of Ericsson Turkey in order to see their contribution
to sustain and develop their current advantages.
Corporate communication is the first organizational skill to be mentioned. Both
intra and inter organizational capabilities are the most important determinants
to achieve acceptance from different players in the industry. The multinationals
should know how to make business and establish relations in each market they
operate and methods to gain success differ from country to country. A close
relation with the government is essential in Turkey where the telecom market is
still state dominated.
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A well-established team is another asset of the company, where there is always
one to replace the other in the cases needed and the team works in an ideal
harmony, which creates a suitable base to develop the services provided for the
customers. Members of the organization have also important technical and
managerial potential, which help the company during the innovation process.
Ericsson Turkey is able to understand the major needs of the domestic market
and launch the possible solutions in the shortest period possible.
As a third critical skill, we can point to the capability of quick decision-making
and implementation. The significant short periods for decision-making in
Ericsson Turkey are the unique examples within Ericsson’s global network. It
is also stated during our interviews that Ericsson Turkey could sometimes
finalize the decision making process for some critical issues in a shorter time
than headquarters does.
We find these capabilities important to sustain the advantages in Turkish telecom
market. However, as we have mentioned earlier, these capabilities can easily be
replicated by the competitors. Therefore, Ericsson Turkey should be able to
provide a new competitive base to differentiate itself from the competitors.
Unfortunately, the possible solutions are rather limited, since the technological
development and research is not the core business area for Ericsson Turkey. For
this reason, the company should be able to differentiate itself as a service
provider by making it harder for its clients to shift their operations to another
competitor. Increasing the value provided for the customer, cost of shifting from
one supplier to another and providing side benefits for the customers will play
the major role in sustaining and expanding the customer portfolio.
Summary
Concluding the industry analysis for the company, we are able to define the
major strengths and weaknesses of the company. We also raised the important
issues to be concerned about regarding the resources and capabilities from a
‘service provider company’ viewpoint. The observations from this chapter will
establish an important base for the following recommendations part.
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7. HOW ERICSSON SHOULD ACT
In this chapter, we summarize our findings from the industry analysis
(Chapter4), specific market analysis (Chapter5), and the internal analysis of
the case company. We use the critical issues grid to do that. This grid
determines the issues to be addressed in the diffusion process of mobile
Internet in any given market with special emphasis on the emerging country
markets. In the parts that follow, we present managerial implications for our
case company Ericsson. We will start by looking at what we have done so far.
7.1 Summary of Our Analysis
In chapter 4, we have analysed the mobile Internet industry in general. We have
defined the industry, the main actors of the value chain and the trends. The
following chapter dealt with the Turkish market, which we have selected to
highlight the challenges and opportunities of a technological innovation, the
introduction of a radically new product in an emerging economy. We have
analysed the market from both a macro environment and business environment
point of view. This chapter concludes with a comparative analysis of the
diffusion process in developed and developing economies. Chapter 6 is mainly
about our case company Ericsson Turkey. In this chapter, we try to pinpoint the
strengths and weaknesses of the company. At this point, it is time for the
managerial implications that will be based on our previous analysis.
7.2 The Critical Issues Grid for Mobile Internet
We have already discussed the theoretical aspects of this grid and how it should
be interpreted in chapter 2. We will use this grid to analyse the different
environments in which Ericsson operates. We take into account five basic
environmental forces that are particularly significant: Political, Behavioural,
Economic, Social and Technological.
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We will deal with each of these five forces separately on three different levels:
company, industry, and infrastructure. At this point, we should note that we
have tried to determine all the issues that should be addressed by the
stakeholders involved in the industry. However, we will not suggest a
managerial implication for each one of them. There are mainly two reasons for
that.
First, Ericsson Turkey, as a private company aiming at profit maximization,
need not or could not deal with each of these issues. Some of the challenges
highlighted are beyond the reach of a subsidiary company. For example, the
need for user-friendly devices is a matter that should be dealt with by the
company as a whole not by a single subsidiary. Some other issues are so broad
and deep that they could only be addressed by national / International
authorities or by industry associations.
Second, there are limitations to the scope of this study and we cannot take in
hand all. We have to draw a line somewhere and in that case, the boundaries
are limited by the extent of Ericsson Turkey’s capabilities.
We follow the following structure in this chapter. First, we present a grid listing
the critical issues to be addressed. Then we quote our findings that are the
results of our analysis of the empirical data. Finally, we form the managerial
implication that stems from our findings.
7.2.1 Political issues
We have noted the significance of a central decision maker in the diffusion
process of a technological innovation with network externalities. This is
certainly valid for the adoption of mobile Internet. Most of the time this central
decision making body is a political institution or is driven by one.
In this respect, Ericsson has to manage its network of relationships in a way to
optimise the adoption process.
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Table 7.1 Political issues Grid
Company
Political
Law requirements
•
1. The restructuring of the sharing procedure
of the network operator income by the
telecom monopoly, which currently blocks the
development of the mobile services such as
m-commerce.89
2. Introduction of venture capital legislation.
Industry
(Business
Ecosystem/Value
Networks)
!" Deregulation and privatisation in
the industry.
!" Incentives that would accelerate
the diffusion process, such as tax
reductions, exemption in value
added tax in m-commerce
transactions, etc.
Infrastructure
Finding #1: There are significant gaps and obstacles in the legislation that
would delay the adoption of mobile Internet. These are valid in the income
distribution measures of the network operators, taxation procedures and in the
legislation that regulates the placements of credits by the financial institutions,
especially concerning venture capital placements. Government requirements
are affected by lobbying (constituents, corporate lobbying), global regulations
and domestic regulation (regional and national laws). The likelihood of
subsidies and incentives are other crucial points.
Implication #1: Ericsson should act actively in order to initiate a pressure
group of the players in the industry to force the political bodies and the
bureaucracy to implement the necessary changes. This is something Ericsson
cannot and should not do alone. However, Ericsson - being the leader of the
mobile communications market in Turkey- can lead or initiate a movement.
The close ties with the biggest operator Turkcell and the new coming licensee
Istim puts Ericsson in a strong position to coordinate such initiatives.
7.2.2 Behavioural issues
Behavioural aspects of an introduction of a radically new product are hard to
estimate accurately in advance. The consumer demand for a particular product
is in general influenced by clusters of issues concerning (1) education and
information (public education, company marketing and promotions, and
Consumer Report support, etc.), the (2) value proposition (safety,
89
See Chapter 5
155
performance, aesthetics, and total cost of ownership), and (3) social
acceptance (age range acceptance, driving pattern changes, human interaction
changes, and trendiness of mobile Internet). The first two will be dealt in this
section while the social aspects are addressed later.
Table 7.2 The Behavioural issues grid
Company
Behavioural
(how people
interact w/
product)
!" Can cellular devices serve as PCs
to access the Internet or should
they coexist?
!" Will MI perform access speed at a
level of satisfaction to end-users?
of
compatible
!" Availability
terminals and acceptability of
terminal cost/performance
!" Appropriate user interface that
provides ease of usage.
Industry (Business Ecosystem/
Value Networks)
!" Are other means of accessing
the Internet as low cost and
convenient?
!" Will industry convince the
users of security and
reliability of mobile Internet
(MI)?
Infrastructure
MI
change
!" Will
communication and
shopping patterns?
role
will
!" What
stakeholders have in
promoting
product
acceptance?
!" What public education
will be developed to
promote acceptance of
products and shift
from
voice
communication
to
data communication?
Finding #2: Data handling ability of average Turkish consumer in
communications is rather limited. This is mainly due to late and partial
adoption of wireline Internet that has still not reached a sufficient level.
Implication #2: That problem is eminent not just in Turkey but also in other
emerging economy markets. One of the most important challenges of
equipment vendors such as Ericsson will be to develop user-friendly devices.
The most effective solution to this problem is likely to be advanced voicerecognition technologies. The scope of this problem is beyond Ericsson
Turkey’s capabilities. However, an initiative to be launched along with other
industry leaders could stimulate the concerned decision making bodies. This in
return could start a shift towards an education system that is more information
technologies oriented. The short-term solution is obviously a simpler and user
friendly interface on the terminal side.
Finding #3: ‘Wireline Internet’ penetration is not likely to reach impressive
heights in the mid-run although the nominal growth rate is large, as it is coming
from a low base. This means the mobile Internet has to ‘take off alone’ in
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Turkey (contrary to developed markets that enjoy above 50% internet
penetration rates) without the help of a complementary partner such as home
PCs.
Implication #3: As mentioned before, this could be a threat as well as an
opportunity for the diffusion process. As the Internet is not very well known
the average user will not have great expectations from mobile Internet
applications, which deliver limited services at this initial stage. This means
very basic services such as online stock purchases, e-mail, corporate mobile email, news coverage, etc. could be radically new and thus very attractive for
average users. Ericsson already has a number of solutions for mobile services.
The company has also formed alliances (also ownership relations) with key
content providers such as Popwire90. The challenge for Ericsson Turkey is to
transfer the benefits of these alliances to the Turkish consumers. This requires
close cooperation with the headquarters and getting actively involved in
Ericsson’s global joint venture and alliance strategy. Continuously informing
the application developers and content providers within the frame of an
aggressive marketing policy towards these companies that are to generate the
next generation mobile products and services (such as stock brokers, banks,
news content providers, etc.) is crucial for Ericsson.
7.2.3 Economic issues
Economic factors are likely to be the most important but also the hardest to
handle in the diffusion process of mobile Internet. That is not only because of
the chronic macro economic instability that is specific to in Turkey but also
because of the general lack of venture funding in developing economies,
especially in hi-tech sectors that require long-term commitment. The business
models for the mobile Internet platform are not clearly defined yet and there is
an anxiety about the telecommunication sector among investors, particularly
about the 3G networks to be deployed and the license fees to be paid.
90
An online entertainment broadcaster, http://www.popwire.com/
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Table 7.3 Economic issues grid
Company
Economic
!" How can scale economies be created and
what is the break-even cost for the new
technology for different clusters in the
value chain?
Value Networks)
!" Will network operators offer
reasonable fees for the
services?
!" Will it be possible to access
adequate financing options
for the industry players?
Infrastructure
!" Will incentives be
given in order to ease
the barriers to entry
for the industry?
the
new
!" Will
technologies to be
used
offer
cost
advantages?
Finding #4: The weak structure of the financial sector and the shallow capital
markets make financing a challenge for the start-up companies. Now the large
conglomerates are attempting to finance their spin-offs with own resources but
the sustainability of such a policy is suspicious to us. It is exceptionally hard
for application developers and content providers to get initial stage financing.
Although some of the professionals were optimistic about the possibilities,
when we compare the situation with Sweden, the problems become obvious.
Implication #4: Ericsson has already initiated alliances with a variety of
companies to launch venture capital funds for specific regions, i.e. Latin
America and South East Asia. Ericsson Turkey should also negotiate with the
holding company for the allocation of at least a fraction of these funds to the
Turkish companies developing applications and content for the mobile Internet.
We have already discussed the importance of network externalities in this
sector. Thus, it is vital for Ericsson to support the mobile Internet community in
terms of both management and technical backing and finance. In that respect,
Crea-World is a good step forward but it is not enough. Ericsson could also
manage to attract other funds to the country and convince them to invest, using
its sound corporate identity. There is already an organic connection between
Ericsson and major funds such as Investor AB, which could help these efforts.
To achieve these, effective communication with the holding company on these
issues is necessary.
Findings #5: The cost of access will be an important determinant in crossing
the ‘Chasm’. Turkey is a relatively low-income country when compared to EU,
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U.S. and Japan. The price of the terminals and the access fees charged by the
network operators should not be too high to scare away the end user. That is
only possible if the government grants tax exemptions for the access fees.
Implication #5: It seems very unlikely that the government will be able to cut
any tax rates given the conditions of the stand-by agreement with IMF.
However, Turkey desperately needs the benefits of the Internet and is already
well behind Western Europe. At least in the initial stages of the deployment of
this new platform, some encouragement by the public authorities is crucial.
Thus, lobbying in the appropriate bodies is necessary for the Industry and for
Ericsson for such a move by the government.
Finding #6: Many Turkish companies are striving to increase the productivity
as the currency pressures are climbing. Although the rocketing real interest
rates have cut back corporate spending for the last couple of years, if the value
proposition and the benefits of mobile Internet can be communicated well,
there is a great opportunity.
Implication #6: The network operators as well as the final users should be
educated about the benefits of this new platform and the opportunities it offers.
A team of consultants could be assigned just for this task. This kind of special
care is particularly vital for small and medium sized companies (SMEs). We
have recognized that the network operators are very busy with growth, as the
market has not reached maturity yet. Thus, they have difficulties in keeping up
with the diverse demands of different customer segments and providing them
with the customized services and products. Ericsson should play a more active
role in persuading them in this direction.
7.2.4 Social issues
Turkey has a young generation, which has a certain interest in hi-tech products
and new technologies (Although not comparable to their counterparts in Japan
or Finland). Large cities exist. Mobility and being outdoors is a life style,
which is partly attributable to the climate.
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Table 7.4. Social issues grid
Company
Social
!" Will MI be widely accepted by people
(network externalities)?
!" Will people use MI for same purpose as
previously
using
competing/
complementary technologies?
Value Networks)
!" Will phenomenon of daily
life speed up acceptance of
MI?
Infrastructure
!" Do demographics
or living trends
favour the use of
MI?
Finding #7: Demographics and living trends in Turkey favour the use of
Mobile Internet.
Implication #7: Ericsson already has a global strategy of focusing on the
young generations and relying on them for the quick spread of new
technologies. This should be kept and further developed
7.2.5 Technological issues
The technological challenges faced by equipment vendors in terms of
developing the right products for the mobile Internet and delivering them in
time does not concern Ericsson Turkey to a large extent, as the R&D functions
of the company are rather limited in Turkey.
Table 7.5. Technological issues grid
Technological
Company
Industry (Business Ecosystem/ Value Networks)
Infrastructure
necessary
!" Will
technology be launched
to provide security?
batteries
be
!" Can
developed to support a
larger variety of tasks
shouldered
by
the
devices?
!" Will standardization of software and hardware
occur?
!" Will partnerships occur with the other players in
the value chain?
!" How quickly will the rollout of new generation
technologies, such as GPRS and EDGE take
place?
!" Will it be possible to find enough skilled labour
to develop the necessary applications and content
to support the diffusion process?
the
!" Will
operators
be
able to provide
sufficient
coverage?
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Finding #8: The labour market is already tightening in the face of increasing
demand from the industry. In the middle run, the lack of skilled labour could be
a serious bottleneck for the industry, which could hamper the generation of
necessary applications and content.
Implication #8: Crea-World will be a good stimulus in encouraging people
with technical background to gain the competencies the mobile Internet
platform demands. However, this problem should be dealt with on a macro
level. An industry wide initiative is needed to form an effective strategy that
would convince the authorities for a change towards a more IT oriented
education policy.
Finding #9: A global key success factor in the industry is to simultaneously
match the network abilities and the terminals, the content and applications that
go with it.
Implication #9: This calls for close cooperation with all the actors in the
industry, just as NTT DoCoMo did when launching the i-mode. DoCoMo has
established close cooperation with all the equipment vendors, particularly the
terminal vendors and content providers from the very beginning of the launch
of its services. To learn what happens when one fails to do so, it could be a
good idea to check the disappointment of the broadband companies in Sweden,
which have managed only one tenth of the number of subscribers they expected
to sign up in 2000. If the value proposition is not complete and there is a
missing part in the value chain, the diffusion of a new product is likely to be
rather painful, especially when there are strong network externalities.
7.3 Some Factors Affecting User Demand for Technology
We have discussed the critical issues to be addressed, our findings and the
managerial implications that match with those. At this point, we would like to
sum up these briefly. Since mobile Internet establishes advanced direct
connections, the degree to which opportunities for more efficient interaction are
leveraged depends on the motivation of people and businesses to join this new
platform. A strong driver of demand for individual people and businesses is the
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network externality. On the user side, the presence of and access to others
motivates demand. On the business (vendor side), the more vendors that are
present the more presence becomes a necessity of doing business. As the user
or vendor base increases, this effect could dampen due to congestion. For the
network externalities to be realized, access to mobile Internet should be
affordable, reliable, instantly available, secure, simple, and widespread.
The importance of reaching a favourable price-performance ratio for acquiring
new users is clear and needs little elaboration here. Demand of digital products
and services requires a sense of a secure environment. A fear of the digital age,
often fuelled by the media and film and television stories, still exists. Public
education can demonstrate the reality of the situation. Demand can be increased
by highlighting that the benefits of involvement in mobile Internet (and Internet
in general), including productivity and ease of use, exceed the risks. Users
entering the digital space must be clear on the trade-off of their personal data
for benefits such as personalized service and better prices. Security
technologies and assurances, such as guaranteed credit-card-theft coverage, will
also facilitate public confidence.
Interfaces are a key enabler of successfully reaching end-users because they are
the mechanism by which users operate. Device manufacturers and content
creators must come up with consumer interfaces that are intuitive, simple,
comfortable, and flexible. Currently, most interfaces are slow, choppy, and one
directional. Digital-media applications will force the development of interfaces
that seamlessly integrate content and have two-way communication for
interactivity. Web browsers should also be consistent. A single browser
standard would benefit both developers and end users.
Another motivating reason to purchase digital products and services similar to
ones offered on the mobile Internet platform is the availability of compelling
content or a powerful application, also referred to as a killer application. If
consumers are given a reason to buy, all the supply barriers such as inadequate
bandwidth will get resolved. For example, e-mail use took off rapidly because
it was a compelling, powerful message. Thus, it forced everyone to figure out
how to get it.
162
7.4 A holistic perspective is required to jump over the chasm 91
What we have observed while we were trying to gather the empirical evidence
to support our study is that there is a systematic gap in the network of
organizations in this evolving business ecosystem, namely the mobile Internet
industry).
We have already discussed the theory of technology life cycle or the diffusion
theory in section 2.7. The reader will recall that between the early adopters and
the early majority lies the chasm. In our opinion, this evolutionary edge for the
mobile Internet diffusion in Turkey is between the achievers and the materialist
group92. The central issue is how does the industry formulate and implement the
value propositions to address the needs of this group. We could not find any
organization that currently facilitates this crucial transition. It is in bridging
between these segments that a new organization could be established with
interrelated strategic roles to play: incubator, playground, showcase, classroom,
tactical-problems forum, and strategic-issues forum93. Each of these roles has a
virtual and physical presence. These will not be discussed here in detail.
Although there have been initiatives such as Crea-world established by
Ericsson, there is no industry-wide initiative to address the issues and to
perform the roles mentioned above. There is an obvious need for a scheme that
gathers the convergence parties.
7.4.1 Gathering of Convergence Parties
We have already discussed the multi-dimensionality of the problem and the
complexity of the solution, which requires macro level action such as shifts in
education policy, radical changes in the financial institutional network, etc.
These issues cannot be addressed by one actor alone, even if it is the industry
leader as Ericsson is in Turkey. The overlap of disciplines created by the
convergence of Internet and mobile communications and the requisite
91
We have taken advantage of some of the ideas from Cooper and Noble (1999) while forming this
section.
92
See section 5.2.5 for a description of these groups
93
These roles are further explained in Cooper and Noble (1999)
163
collaboration among relevant companies creates a strong incentive to assemble
equipment vendors, application developers/content providers and the network
operators/ISPs. Such cooperate initiatives require the close interaction of
companies across these industries. The general objective of such a gathering
place, whether virtual or physical, should be the advancement of mobile
Internet and the facilitation of a dialogue among parties.
Assuming a physical facility is founded, it should be a place that speeds the
general acceptance of new mobile products and services and that accelerates
the adoption of new thought patterns and new expectations. Essentially, a
‘mobile Internet empowerment centre’ should both provide access to and create
information. The fundamental components of the centre would consist of
people, tools, and infrastructure. This centre should be a knowledge transfer
centre across industries and different parties across the value chain.
The location of such a centre should be undoubtedly Istanbul. The facility
should be wired for high-speed communication and be equipped with all the
necessary infrastructure. The centre should be global in nature to connect local
businesses and resources to other regions and global players in the industry. It
should act as a meeting point for all the involved parties, for example the local
start-ups and foreign venture funds. The initiative should be integrated into a
worldwide development of similar centres for business and educational
purposes. The centre would provide a portal to the global community to help
them find partners and projects and participate in international forums. In
addition, when foreign parties come to Turkey, it should stand as a facility
where they can see what the country has to offer.
There are already opportunities made available for testing and collaboration for
start-ups and young enthusiasts. Thus, this role for the centre is not that
significant. The fundamental objective of the centre should be to encourage
collaboration among the firms across the value chain. The centre should
facilitate communication and cooperation among these companies by
overcoming geographic, cultural, and communicative barriers. These
companies have different objectives with some overlap. Collaboration
initiatives would bring more cohesiveness and synergy to mobile Internet
164
platform. It would help nurture relationships and partnerships and provide a
meeting place for planning among partners. A gathering place would create a
sense of community, promote member companies, and generate new ideas. The
industry would be able to act as one when lobbying with the central decision
makers that are exceptionally vital in the diffusion process of the technology94.
Such a centre would also allow companies to showcase the new products and
technologies. Showcasing performs a marketing function by enticing people
until the time that the product is ready so they are primed to want it. In
addition, start-up companies can stimulate interest in their firm while still in
development. Showcasing educates the industry on the latest technologies and
research. Companies can find out how to apply new technologies to their work
and how fast will they arrive. Both technology and content companies would
seek to demonstrate their offering, including service, appliances, software, and
creative concepts.
The organization of the centre should be agile and entrepreneurial in order to
recognize and act quickly on opportunities.
A centre needs a strategic vision, not a tactical approach. It cannot be viewed as
a cost centre or a short-run profit division. The objective for the centre and for
each one of its members should be to cultivate the long-term potential of
mobile Internet, which will in turn benefit each of its members in a manner that
is mutually supportive rather than mutually exclusive. Far from a vague or
altruistic goal, each partner must know upon joining what it wants to
accomplish and how the objectives benefit them directly within their sphere of
control, furthering their needs and their funding sources.
Ericsson as the industry leader both in terms of its global identity, its
particularly strong position in the Turkish market, and its indisputable knowhow and know-who superiority to other players should lead the formation of
such an initiative.
94
See sections 5.8.1 and 7.2.1 for the role of central decision makers
165
We believe that mobile Internet boom is inevitable in the emerging country
markets as well. However, the rollout of the networks and the adoption of
compatible terminals will not be effortless. No equipment vendor should expect
that. There are significantly higher barriers for the diffusion of this new
technology in the emerging markets when compared to developed country
markets. The challenge is big and even Ericsson cannot bear it alone.
One should not forget the mistakes that were in fact a result of the lack of
cooperation of the industry players and the lack of clearly defined strategies
when Internet was first launched commercially in Turkey. The adoption
process has been most disastrous and unsuccessful for all the companies across
the value chain. This catastrophe, on the other hand, has also left out some of
the historical mechanisms that can help guide and shape the adoption of mobile
Internet. We hope that the issues highlighted in this report and the
recommendations such as establishing a centre, a pressure group to defend and
promote the industry on different platforms can help dissolve the barriers to
mobile Internet diffusion.
These measures may help to accelerate the diffusion and the development of
the market. However, these do not guarantee the appropriability of the returns
for Ericsson. In fact, industry analysts do not favour the network operators or
the equipment vendors in their forecasts of how the ‘mobile Internet incomes’
will be shared once the platform takes off. Even then, our main idea when
starting this study was that as an equipment vendor Ericsson should be able to
collect the return for its efforts. We elaborate on this issue in the following
chapter.
166
8. CONCLUSIONS AND FUTURE RESEARCH
In this final section of our study, we present the answers to our main problem
with regard to our findings. We also try to spot the relevant issues for future
research studies.
8.1 General Conclusions
MAIN PROBLEM
How can a telecommunications equipment vendor successfully implement business development
strategies in the rapidly growing Turkish mobile Internet market and achieve profitable growth?
In order to find an answer to our main problem, we should turn back to our sub
problems that are portrayed in Chapter 2. Initially, we should highlight a final
evaluation of the Turkish mobile Internet market in order to establish a base for
our comparison with the developed markets from which we will get the
indications about the future of the market in Turkey and therefore set up a
guideline for Ericsson on its way to get the largest revenues from the market.
We have raised the various drivers and barriers for the development of MI in
Turkey. When it is compared to the West European markets, it still has a long
way to go to maturity. The market has lagged behind during the Internet period
and now mobile Internet comes out as a saver to recover the costs of the lost
opportunities coming with the Internet. Internet penetration in the country has
recorded 3-4% in 2000, which is considerably low when compared to above
50% penetration rates in Nordic Europe. We studied the major reasons behind
this figure. Low PC penetration rate has the most direct impact on this result
and we have addressed economic, social and educational reasons behind the
users’ reluctance to utilize Internet services.
167
8.1.1 Final Evaluation of Turkish MI Market
8.1.1.1 Technological Infrastructure
Considering the less complex structure and more economical price offerings of
the cellular devices, we believe that mobile Internet penetration will exceed
conventional Internet penetration in the short-run. The huge gap between the
mobile phone penetration rate and PC penetration rate also justifies this
forecast.
Different from most of the developing countries, Turkey has a contemporary
mobile communication network where two operators have already been active
for 6 years and other two operators are expected to launch their services during
the next year. However, this does not mean that the infrastructure is capable of
responding to the potential demand in the following years. The capacity should
be expanded and this is not an easy task under the current state monopoly in
telecom market. The management of the wireline network and control of the
wireless services have been delegated to Turk Telekom, the state owned carrier.
On the other hand, within the framework of the stand-by agreement with IMF,
government has committed to privatise Turk Telekom by offering 33.5% of the
shares to private investors. This is a decision, which has long been awaited.
With the privatisation of the carrier, Turk Telekom will have the necessary
flexibility to make quick decisions and implement new ideas that will certainly
have positive reflections on the technical infrastructure. The capacity shortage
is expected to be solved to a remarkable extent following the conclusion of the
privatisation process. However, we estimate that this will not take place before
mid 2002.
8.1.1.2 Network Operators
Network operators will offer a new pace for the development of the technology,
since we believe that mobile operators will be the initial players in the industry
who tend to get the largest share of the revenues. Evaluating the last 6 years of
the operator market, we cannot say that the market has witnessed a fully
168
competitive environment. The market has been dominated by two operators,
which more or less provide the same services with rather similar prices. As
GSM 1800 license has been delegated to a third operator (Istim). A fourth
mobile operator is on the way, which will be managed by Turk Telekom. The
balances in the market will change dramatically and the players will be after
creating value for the end users. The challenging price offerings will not be the
sole key for competitiveness. The operators have to create value for their user
portfolio in addition to the desirable prices. Operators have an important asset
over other players in the industry, which is customer knowledge and this asset
will help them to grab the largest piece of the pie in the first days of MI. This
dynamism in the operator market will certainly expand through an industry
wide platform.
8.1.1.3 Equipment Vendors
Equipment vendors will shoulder an additional burden during the initial stages
of MI. Offering high quality equipment at reasonable prices could no longer be
a competitive advantage for the competitors. Providing total solutions for the
clients by offering turnkey projects will be essential. Technology being used is
getting more complex as we proceed through the product life cycle of MI.
Today, a majority of the industry is discussing WAP, concentrating on several
issues. Tomorrow GPRS will be a question subject with deeper discussion
points and 3G technologies will be handled more precisely. As the standards
progress, network operators will need more assistance and the best solution for
their problems will come from the manufacturers of the technology.
Considering this situation, Ericsson has an important advantage for GPRS and
3G technologies in Turkey, since the company plays the major role in the
establishment of these technologies. Besides, the company has a first mover
advantage where Ericsson brand is associated with a variety of applications in
telecom industry. We believe that Ericsson will present a better performance in
3G technologies, since the company has already attained 44% of the emerging
industry, leaving its closest competitor Nokia behind with 22% market share95.
95
Aftonbladet, 18 December 2000
169
The extent of relations with the government and Turk Telekom has been an
important criterion for the success of a vendor, since the market was dominated
by a state owned monopoly. This trend will survive until the telecom market is
liberalized. Thus, we believe that the vendors that have close relations with the
government but with clumsy operational structures are expected to lose the
competition and shrink their operations to terminal markets or concentrate on
other business areas they are already specialized in.
8.1.1.4 Content Providers
Content on the other hand is another hot issue of Internet and MI market in
Turkey. Considering the relatively low level of English literacy in the country,
the usage area of the Internet has been extremely limited, since the majority
content on the net is in English. The solution of Turkish content problem is
compulsory for the development of the market. MI cannot serve anything for an
end user if he/she cannot understand the available content. Therefore, we
expect the content providers and ISPs to spend additional effort on content
extension. We believe that if content providers and ISPs fail to provide the
necessary content, network operators, equipment vendors or any other player in
the market will come out to establish a Turkish content base that will help
development of the market. Otherwise, users will present the same reluctance
as they presented towards the Internet and this will seriously hinder the market
growth, which will have a direct impact on the expected revenues of these
players.
8.1.2 MI in Developed Markets
Concerning our second sub problem, we observed that European markets,
Nordic region in particular, have presented a remarkable progress at a rapid
pace. Several countries have already given the licenses for UMTS (Universal
Mobile Telecommunications System), a 3G technology that will be launched in
2001. Successful implementation of GSM, single standard for mobile
communication, has played the leading role in this rapid transition process to
the new technologies. Therefore, the development of MI is more observable in
170
Europe. Especially in Northern Europe where both the Internet and mobile
phone penetration are relatively high, this new technology will advance.
Apart from the discussions about the future of MI, the market is concerned
about the question of how the diffusion process of MI will take place. This
situation is quite different in the case of Turkey, because authorities in the
country still try to solve bureaucratic issues, infrastructure problems whereas
developed markets have already enough base to establish and develop the
technology, and they try to see the ways to get the most profit from the market.
The common opinion about the revenue generator of the market is not different
from the opinions in Turkish market. It is believed that the operators will have
an important advantage in the first phase, and then this revenue will be shared
by other players. We believe that a single player is not capable of getting the
most out of the market by itself. Partnering and strategic alliances are the key
success factors for both European and Turkish markets. Having the necessary
customer knowledge could be an important asset for network operators, but
ISPs on the other hand have the customer knowledge in terms of customer web
traffic and equipment vendors will provide the technology and the user
interface. Through the collaboration of these players, not only the prices will be
lowered but also the quality of services will increase.
Another difference between Turkey and West European markets during the
diffusion process is that users in West Europe feel that applications will have
the greatest influence on customers’ adoption processes. Price and convenience
of the product have secondary importance. Majority of users in Turkey on the
other hand prefer to present a price oriented behaviour or other factors come
out with primary importance.
8.1.3 The Strategy for Ericsson Turkey
As a third concern, we had highlighted the question of how Ericsson can relate
to the challenges of the complex situation in the Turkish market. Although
infrastructure and customer base in Turkey differ widely from developed
markets, the general norms and trends of the new technology are the same. The
171
development process in Turkey will follow the same path in the developed
markets, but theoretically, Turkey will again follow this path a little behind,
perhaps with a gap of 6-12 months. The market should be restructured and
crucial investments should be employed for the infrastructure. It is still early to
determine who will get the most from MI in Turkey, but we believe that
whatever player it is, the one who invests at the right time will get the most
from the market. Partnering is also essential for Turkish market. The players
should leave their renowned “me, too” strategies and start to take place in the
market for contribution and get the benefits of their contributions in the future.
Therefore, Ericsson should initially examine the current condition of the market
and estimate the future state. Being a market maker is an important asset to
attain leadership, but sustaining the leadership is the real issue. In order to
sustain leadership, the company should get into strategic alliances with
different companies from different business areas. Providing this, the company
will enlarge its market area and raise the quality of the services provided.
Integration of organizations is critical to facilitate cooperation. Digital
convergence will encourage technology, communications, and merchandise
companies to seek out new partnerships and alliances. Since they are expanding
the scope of their domains, organizations will need to acquire new skill sets.
Ensuring the integration of cultures requires planning and commitment.
Outside expertise, such as consultancies, may be required to help identify
acquisition and partnership targets, manage the transaction process, and
integrate the organizations. Greater cooperation can be encouraged through
collaboration initiatives, information sharing, and joint branding. It is crucial
for cooperating organizations to achieve trust and mutual respect. Security and
privacy of information exchange must be established and communicated.
Large-scale cooperation may require the establishment of a leadership body.
Rules and enforcement standards, which are objective and related to strategic
goals, must be known and accepted by all parties. Leadership must decide how
much control members will be given, whether rules will be created formally or
informally, and whether compliance will be mandatory or voluntary.
Collaboration by itself will not be sufficient for the achievement of success.
New forms of value-added service must be provided to differentiate Ericsson
172
among other suppliers. One of these services is customisation. The availability
of more information about customer needs and preferences enables businesses
to directly respond and organize supply around such information. As a result,
tremendous power is shifted to customers. Consumer marketing and
transactions become more personalized using any available information. In
addition, product offerings can be customized. For example, entertainment
products can be customized to the preferences of the consumer.
Customisation requires a complex process for suppliers. Companies that
manage this process the best when offering custom products in a cost-effective
manner will gain a competitive advantage over mass-product suppliers.
First, Ericsson must be able to gather customer information, (both terminal and
network) requiring customer feedback through methods such as registration and
purchase records.
Secondly, Ericsson must be able to make assumptions about consumer
preferences. A common method involves using “data mining” to identify
purchase patterns or to conduct customer profiling. Through data mining, it is
also possible to determine what motivates customers and what keeps them
loyal.
The next step is to store preferences for later use with technology such as data
warehousing. Since consumers tend to interact with Ericsson in many ways and
in many locations, Ericsson must be able to integrate multiple customer data
sources to provide maximum potential customisation.
Finally, Ericsson should tailor product offering to match those preferences.
Additional services could also be offered based on comparing a specific
customer’s preferences to a standard consumer profile. We believe that these
patterns of customisation will strengthen Ericsson Turkey’s expertise in
providing total solutions for its clients.
173
8.2. Conclusions of the Theoretical Model
We initially studied the development pattern of the technology in the developed
markets context in order to see the major determinants that shape the market,
the present approaches to this new technology and the possible future state. In
the light of our findings from developed markets, we evaluated Turkish
telecom market together with the complementary technologies. We also
included the unique features of the market, which may play important roles for
the future of mobile Internet in Turkish market. Finally, we focused on the
business environment of Ericsson Turkey, trying to evaluate the company
within national and international context.
We preferred to put an additional emphasis on the Turkish market, since we
believe that mobile Internet is the next opportunity for the markets such as
Turkey, which have missed the chance to utilize the benefits of the former
Internet era. When we evaluate the issue in the developed markets context, we
see that mobile Internet is mainly transferring Internet applications to the
mobile devices. However, the picture is rather different in Turkey. There is a
huge gap between the penetration rate of mobile phones and the PCs in the
favour of mobile phones. Together with the other factors that are mentioned in
“Industry Analysis”, we find Turkey a good experimental case for the diffusion
of mobile Internet and other technological innovations.
8.3. Future Research Areas
In our research, we focused on the strategies to be followed by Ericsson Turkey
during diffusion process of MI and we gave less importance to the products.
Cellular devices in 3G technologies will have totally different features
compared to the 2G devices. First, they will serve as hand size computers that
enable the Internet access, secondly and probably more importantly they have
personalized features. These features will form a new competitive environment
for the device manufacturers and the brands that are most appealing for the
personal needs of the individual users tend to succeed in this new market.
Within this context, 4G plans of Ericsson could also be raised, which will
contribute to the mobile Internet technology by allowing up to 50 times higher
174
speeds in Internet connection compared to 3G technologies. A personalized
feature of this new technology is also noticeable, since 4G devices will be less
dependent on menus and scrolling. The cellular device will be able to recognise
whether the user is standing in front of the garage door and wants to open it, or
standing in a supermarket aisle wanting to buy something. It is predicted that
the technology will be operational from around 201196.
We have limited our research with a general approach to the mobile Internet
and its possible applications. In our study, we have mentioned several
applications that will drive the overall development of mobile Internet.
However, we did not present any detailed discussion about which market
segment could be interested in which application. This could be a subject for a
survey where the associate would need to perform a precise market research.
Currently, mobile Internet is an emerging technology and the future is still
unclear. While doing our research, we evaluated the market from terminal
manufacturers and network equipment providers’ viewpoints, since Ericsson
Turkey is our case company. However, we also find the other mobile devices to
access the Internet important mediums for the development of this new
technology. Therefore, in “Substitute Technologies” section, we raised some of
the examples from these devices that could be alternatives for 3G mobile
phones. We think that alternative devices for Internet access are a suitable
future research area, since the appropriateness of mobile phones’ user interface
is still under question.
Further contacts with the authors
For comments, questions, and requests, you may contact the authors at the
following addresses.
[email protected]
96
[email protected]
Financial Times, 14 November 2000
175
176
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APPENDIX A
GLOSSARY
3G 3rd Generation mobile technology according to IMT-2000 standard (e.g. UMTS
in Europe)
API Application Programming Interface
ARPU Average Revenue Per User
ASP Application Service Provisioning
ATM Automatic Teller Machine
Bluetooth Chip technology enabling seamless voice and data connections between a
wide range of devices through short-range digital two-way radio.
CB Cell Broadcast
CDMA Code Division Multiple Access. Allows reuse of scarce radio resource in
adjacent areas.
CAGR Compound Annual Growth Rate
CRM Customer Relationship Management
EDGE Evolved Data for GSM Evolution. Allows networks to meet many of the
requirements for UMTS
ERP Enterprise Resource Planning
ETSI European Telecommunications Standards Institute
FCC Federal Communications Commission (US regulator)
GAA GPRS Application Alliance
GPRS General Packet Radio Services
GPS Global Positioning System
GSM Global System for Mobile communications
GSM 1800 GSM operation at 1.8 GHz; formerly DCS 1800
GSM 1900 GSM operating at 1.9 GHz; formerly PCS 1900
IM Instant Messaging
IN Intelligent Network
IP Internet Protocol
ISP Internet Service Provider
ITU International Telecommunications Union: the international body responsible for
telecommunications co-ordination, the successor body to CCITT
182
Java A high-level object-oriented language, allowing applets (applications) to be
written once, run anywhere (whatever the platform is). The aim is to help simplify
application development.
KM Knowledge Management
LAN Local Area Network
NMT Nordic Mobile Telephone
PDA Personal Digital Assistant
PIN Personal Identification Number
POS Point Of Sales
PSTN Public Switched Telephone Network
OS Operating System
ROI Return on Investment
SI Systems Integrator
SIM Subscriber Identification Module. Smart card holding the user’s identity and
telephone directory; SMS-Applications may reside on the SIM
SMS Short Message Service Facility for sending text messages on GSM handsets
TCP/IP Transmission Control Protocol / Internet Protocol
TDMA Time Division Multiple Access (see also CDMA)
TOA Time of Arrival
UI User Interface
UM Unified Messaging
UMS Unified Messaging System
UMTS Universal Mobile Telecommunications System; the third generation mobile
standard
VAS Value Adding Service
VXML Voice Extensible Mark-up
Language
WAP Wireless Application Protocol. Offers Internet browsing from wireless
handsets
WASP Wireless Application Service Provider
W-CDMA Wideband CDMA
WML Wireless Mark-up Language
XML Extensible Mark-up Language
183
APPENDIX B
INTERVIEW QUESTIONS
The questions are categorized in line with the different group of interviewees.
Some of the questions are common for all the groups and thus repeated under
each section.
Network operators / Service Providers
The company
• What is your current position in the market in terms of
o Market share
o Revenue per subscriber
o Cash card / Usual subscription ratio
o Mobile Internet Subscribers / Mobile Phone Subscribers ratio
o Growth rate of these segments?
• What are the technological characteristics of your current network
infrastructure?
• What are your investment plans in the middle run?
• What are your criteria in selecting the equipment supplier(s)?
• How extensive are the purchasing contracts you sign with your suppliers?
• Do you think you can get similar prices and services as the operators97 in
developed markets get?
• Is there a technological gap between your network structure and the
operators1 in the developed markets?
97
Stands for ‘network operators / service providers’
184
Customers
• What are the characteristics of Mobile Internet users? (Already computer
literate, converted from conventional Mobile subscription to Mobile Internet
subscription, etc.)
•
What are the products and services you offer to enterprises, both the
corporate clients and the SMEs?
The industry
• What are your strategies and plans for promoting the Mobile Internet and
developing the market?
o Do you have any special strategy to support the companies providing
Mobile Internet services such as running sites accessible via WAP
phones?
o What is the approach you use to create Mobile Internet services?
(Outsourcing / generating spin-offs etc.)
• Which services do you think are appropriate for the Mobile Internet
environment?
• Do you think there are differences in the Turkish market with respect to the
other developed markets that could prevent the spread of some certain
services in Turkey?
• What are the differences between the services and products offered by
Turkcell and offered by other operators Sonera owns98? (This question is
specific to the operator, Turkcell)
• What are the barriers and drivers in the development of the mobile Internet
in Turkey in your opinion?
• What are the strategies to go beyond these barriers in your opinion?
• Which of the following complementary resources are most crucial to speed
up this process?
o Finance
o Services for the mobile Internet environment
98
Turkcell is co-owned by the Finnish mobile operator Sonera
185
o
o
o
o
Complementary technologies
Competitive manufacturing (price of the equipment)
Marketing
Other
• What do you think are the key success factors in your industry and
particular market?
• What do you think your competitive advantage is?
• Who do you think will control the Mobile Internet development process in
the future?
o Equipment vendors
o Network operators – Service providers
o Companies generating products and services appealing to the mobile
Internet
• Who will get, in your opinion, the most of the distribution of the benefits of
the Wireless Internet?
o Equipment vendors
Internet
o Customers
• Do you have any solutions to increase the appropriability of your operations
and increase your share of this distribution of benefits?
Equipment Vendors
The Company
• What is your position in the Turkish market in terms of
o Market share in different categories
o Main customer accounts
o Sales growth?
• What is your position in terms of the global sales of your company?
186
• The organizational information such as the size of the workforce, number of
offices, the distributors, the length of existence in the country, etc. that was
not available as secondary data.
• Which segment is most attractive for you, the infrastructure equipment,
handsets, enterprise solutions, etc.?
• How do you manage your key customer accounts? Do you employ account
managers for the potential clients as well?
• How do you construct your network of relationships with different agents in
the industry?
• What is the general condition of
o Reputation (brand awareness, etc.)
o Network of relationships in Turkey?
• Do you think you have an edge over your competitors in these fields?
• Do you think you have a first mover advantage in the industry?
• Do you think if first mover advantage is an advantage in a rapidly changing
industry, particularly in the mobile Internet industry?
• What do you think your competitive advantage is?
Specific questions for the case company: Ericsson Turkey
• How do you compare yourself to the other subsidiaries of Ericsson? Do you
think you are treated different in comparison to the subsidiaries in Japan or
other developed countries with regard to resources committed,
independence, etc.?
• What is your contribution to the overall technology development and
innovation process within Ericsson? (Case: ‘remotely controlled switching
unit update system99’)
• Do you encourage Innovation and generation of the new ideas within the
organization?
• What do you think is your competitive advantage?
99
A system developed by Ericsson Turkey
187
The industry
• What are your strategies and plans for promoting the Mobile Internet and
developing the market?
o Do you have any special strategy to support the companies providing
Mobile Internet services such as companies running sites accessible
via WAP phones?
o Do you have any programs to provide finance for the start-ups
creating products and services for the mobile Internet customers?
• Which services do you think are most appropriate for the Mobile Internet
environment?
• Dou you think there are differences in the Turkish market with respect to the
other developed markets that could prevent the spread of some certain
services in Turkey?
• What are the strategies to go beyond these barriers in your opinion?
• Which of the following complementary resources are most crucial to speed
up this process?
o Finance
o Services for the mobile Internet environment
o Complementary technologies
o Competitive manufacturing (price of the equipment)
o Marketing
o Other
• What do you think are the key success factors in your industry and
particular market?
the future?
o Equipment vendors
Internet
188
o Equipment vendors
Internet
o Customers
• Do you have any solutions to increase the appropriability of your operations
The customer
• What are the main differences, in your opinion, between Turkish customers
and the customers in developed countries, for example Scandinavia? (This
question refers both to the final consumer and the equipment buyers)
• What are the main characteristics of the final consumer in the Turkish
market in terms of using habits, computer literacy, connectedness to Internet
by other means, etc.?
• What products and services do you offer for enterprises?
o Corporate clients
o SMEs
• What are the main differences in serving these two customer segments?
• Do you provide financial support for the SMEs trying to adopt mobile
solutions to their businesses?
• What is the general attitude towards Mobile Internet among the clients?
(Committed, ignorant, interested but reluctant to act, willing to adopt but
lacks resources, etc.)
189
Companies With Products And Services Appealing To The Internet –
Potential Interviewees Include Internet Service Providers (ISPs), WAP
Content Providers, E-Commerce / M-Commerce Agents, Etc.
The questions in this section will be modified for each interviewee in
accordance with its business area and products and services it offers. Some
questions may be skipped totally where appropriate.
The company
• Can you describe your business area, business concept and the motives
behind your decisions of initial investment?
• How long have you been in business for and what is your capital structure?
• Do you have access to the venture capital?
• Do you observe any interest from foreign investors of the Mobile Internet
industry in Turkey?
• What is the current market position of your company and mainly which
factors affect the balances in the competition?
• What is the number of employees in your company?
The customer
• What is the composition of your customers and how large is your customer
base? (Age, income, corporate & individual etc.)
• Do you think conventional users will combine wireless Internet with the
conventional medium, such as PCs?
• In your opinion, what are the differences between the consumers shopping
online in Turkey and the consumers in the developed country markets?
The Industry
190
• How do you evaluate Mobile Internet as a new opportunity for business
development? (Including its current and future trends in regard to technical
and social infrastructure of the country)
• Do you look forward to get involved in the Mobile Internet market area by
establishing a new website? (In case the interviewee has not already got a
web site accessible via wireless devices such as WAP handsets)
• What type of online products and services do you offer now?
• Has your online shopping website fulfilled you expectations since the day it
has been started up, if so, do you plan to transfer this facility to the mobile
platform after making the necessary modifications?
• What is the comparative significance of wireless Internet and conventional
Internet (such as PC users) in your strategy formulation?
• Have you figured out any specific product group or service that your
company may have an advantage to offer on the Mobile Internet?
• In your opinion, will business to business or business to consumer market be
a breakthrough for the Mobile Internet development in Turkey?
the future?
o Equipment vendors
Internet
o Equipment vendors
Internet
o Customers
Do you have any solutions to increase the appropriability of your operations
191

Mobile Internet

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